Question

Godina Products, Inc., has a Receiver Division that manufactures and sells a number of products, including a standard receiver that could be used by another division in the company, the Industrial Products Division, in one of its products. Data concerning that receiver appear below: Capacity in units 58,000 Selling price to outside customers $ 89 Variable cost per unit $ 35 Fixed cost per unit (based on capacity) $ 42 The Industrial Products Division is currently purchasing 10,000 of these receivers per year from an overseas supplier at a cost of $81 per receiver. Assume that the Receiver Division is selling all of the receivers it can produce to outside customers. Does there exist a transfer price that would make both the Receiver and Industrial Products Division financially better off than if the Industrial Products Division were to continue buying its receivers from the outside supplier?

Answer 1

Answer:

No, there would be no existence of a transfer price that would make both the Receiver and Industrial Products Division financially better off than if the Industrial Products Division were to continue buying its receivers from the outside supplier

Explanation:

Assuming that the receiver division is selling all of the receivers it can produce to outside customers, there will be no existence of a transfer price that would make both the receiver and industrial products division financially better off than if the industrial products division were to continue buying its receivers from the outside supplier.

Reason being that the minimum transfer price that the selling division should be willing to accept surpasses the maximum transfer price that the buying division should be willing to accept.