Altoona Corporation Has Two Divisions, Hinges and Doors, Which Are

Altoona Corporation has two divisions, Hinges and Doors, which are both organized as profit centers. The Hinge Division produces and sells hinges to the Door Division and to outside customers. The Hinge Division has total costs of $35, $20 of which are variable. The Hinge Division is operating significantly below capacity and sells the hinges for $50.
The Door Division has received an offer from an outsider vendor to supply all the hinges it needs (20,000 hinges) at a cost of $45. The manager of the Door Division is considering the offer but wants to approach the Hinge Division first.
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What is the maximum transfer price that the Door Division would accept from the Hinge Division?

A) $20.
B) $35.
C) $45.
D) $50.

Correct Answer:

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