General Dynamic has two divisions. The Pistons division makes high quality steel
ID: 2430097 • Letter: G
Question
General Dynamic has two divisions. The Pistons division makes high quality steel pistons used in motors. The Motors division makes motors used in industrial sized equipment.
The variable cost of making a piston is $80.00 per unit. The variable selling expense is $5.00 per unit. The fixed manufacturing overhead cost is $20.00 per unit.
The Pistons division currently sells a piston for $150.00 per unit to outside customers. This is the current market price for similar pistons purchased by the Motors division. The Motors division would like to buy 1,000 pistons from the Pistons division. The Pistons division is currently at maximum capacity and would have to forgo sales to an outside customer if accepted, but it would not have to pay for variable selling expense.
What is the price range in which the two divisions would be willing to negotiate?
$145-$150Explanation / Answer
Minimum acceptable price range by Pistons division = 150-5 = $145 Price range in which the two divisions would be willing to negotiate is $145-$150
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