Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below: The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.
What is the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division?
A) $51 per unit
B) $37 per unit
C) $48 per unit
D) $14 per unit

Question

Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below:  The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.
What is the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division?
A) $51 per unit 
B) $37 per unit 
C) $48 per unit 
D) $14 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 < $48 per unit