Assuming that the divisions operate with total autonomy, which of the following options is the most likely reason for making internal transfers at a value which is less than the external selling price of the compressor division?

Coolbreeze Co manufactures refrigerators. The company isorganizedon a divisionalised basis and has two divisions (compressor and cabinet).

The compressor division transfers 65% of its output to the cabinet division for $85 per unit, and sells the rest of its output to external companies for $92 per unit.

The cabinet division sells the final product at an average selling price of $495 per unit. In the next month, it expected that the compressor division will produce 27,000 units. The variable cost of manufacturing compressors is $62 per unit.

Assuming that the divisions operate with total autonomy, which of the following options is the most likely reason for making internal transfers at a value which is less than the external selling price of the compressor division?
A . Head office has imposed the transfer price.
B . The management of the compressor division are seeking to restrict the quantity produced.
C . Some additional costs are incurred on external sales.
D . The transfer price has been set to allow the cabinet division to compete through lower prices.

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Answer: C