Oberley 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: The Industrial Products Division is currently purchasing 5,000 of these receivers per year from an overseas supplier at a cost of $58 per receiver.
What is the maximum price that the Industrial Products Division should be willing to pay for receivers transferred from the Receiver Division?

Question

Oberley 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:  The Industrial Products Division is currently purchasing 5,000 of these receivers per year from an overseas supplier at a cost of $58 per receiver.
What is the maximum price that the Industrial Products Division should be willing to pay for receivers transferred from the Receiver Division?

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