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A firm has two departments: Seller and Buyer. Department Seller provides a critical component for...

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Accounting

  1. A firm has two departments: Seller and Buyer. Department Seller provides a critical component for Department Buyers final product. Department Buyer can purchase the part on the external market for $100. Department Seller has plenty of excess capacity to supply the 20,000 units required by Department Buyer. The following cost and price data apply to Department Seller.

    External market price $108

    Variable selling/distribution costs on external sales 10

    Variable manufacturing cost 40

    Fixed manufacturing cost (per unit) 25

    What is the minimum price that would be negotiated between these departments (rounded to nearest dollar if necessary)?

    a.

    $50
    b.

    $98
    c.

    $108
    d.

    $40

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