Question No 44:
Company S has two divisions, X and Y. Division X transfers 50,000 component units to Division Y each quarter. The market price of the component is $20. Division X's variable cost is $10 per unit and its fixed cost is $150,000 each quarter.
What price would be credited to Division X for each component that it transfers to Division Y under: two-part tariff pricing (where the two divisions have agreed that the fixed fee will be $100,000); and dual pricing (based on market price and marginal cost).
A. Two-part tariff pricing = $10
Dual pricing = $22
B. Two-part tariff pricing = $12
Dual pricing = $18
C. Two-part tariff pricing = $10
Dual pricing = $20
D. Two-part tariff pricing = $13
Dual pricing = $22
Answer: C
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