Steinhoff Products, Incorporated, 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, Incorporated, 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

The maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division is the cost savings that the transfer provides. The cost savings per sensor would be the difference between the cost of purchasing the sensor from the overseas supplier and the cost of producing the sensor in-house. However, the problem does not provide any information about the cost of producing the sensor in-house. Therefore, the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division is the $48 per unit that the division is currently paying to the overseas supplier. Therefore, the correct answer is C, $48 per unit.

Steinhoff Products, Incorporated, Has a Sensor Division That Manufactures and Sells