Fingado Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below: The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector.
What is the maximum price that the Commercial Security Division should be willing to pay for detectors transferred from the Detector Division?
A) $83 per unit
B) $51 per unit
C) $91 per unit
D) $32 per unit

Question

Fingado Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below:  The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector.
What is the maximum price that the Commercial Security Division should be willing to pay for detectors transferred from the Detector Division?
A) $83 per unit 
B) $51 per unit 
C) $91 per unit 
D) $32 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 < $91 per unit