Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below: The Home Security Division is currently purchasing 8,000 of these screens per year from an overseas supplier at a cost of $58 per screen.
What is the maximum price that the Home Security Division should be willing to pay for screens transferred from the Screen Division?
A) $58 per unit
B) $26 per unit
C) $28 per unit
D) $54 per unit

Question

Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below:  The Home Security Division is currently purchasing 8,000 of these screens per year from an overseas supplier at a cost of $58 per screen.
What is the maximum price that the Home Security Division should be willing to pay for screens transferred from the Screen Division?
A) $58 per unit 
B) $26 per unit 
C) $28 per unit 
D) $54 per unit

Quizplus · Accepted Answer

From the perspective of the purchasing division, the transfer is financially attractive if and only if:
Transfer price < Cost of buying from outside supplier
Transfer price < $58 per unit