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The Volt Company has several autonomous, decentralized divisions including the Bohn and Odom divisions. Bohn Division manufactures a component that is used by the
The Volt Company has several autonomous, decentralized divisions including the Bohn and Odom divisions. Bohn Division manufactures a component that is used by the Odom Division in the production of a finished product. The component has a competitive outside market, that is, Bohn Division can sell all its production to the outside and Odom Division can buy all it needs from outside suppliers. Bohn Division is using the market price of $25 as its transfer price. Its variable cost is $15, and it is producing at full capacity. Odom Division has just received a request for a special order on its product but must give a discount on the regular selling price. Because it is operating at 50 percent of capacity, the division would like this order. The costs for the finished product are: Variable production costs: Component from Bohn Division Other production costs Fixed costs Total production costs per unit Variable selling and administrative Total costs per unit $25 30 15 $70 5 $75
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