Chesley Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
The company has a Transmission Division that could use this connector in one of its products. The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Connector Division is selling all of the connectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Connector Division is selling all of the connectors it can produce to outside customers. Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Question

Chesley Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
  The company has a Transmission Division that could use this connector in one of its products. The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Connector Division is selling all of the connectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Connector Division is selling all of the connectors it can produce to outside customers. Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Quizplus · Accepted Answer

The Answer of Chesley Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
  The company has a Transmission Division that could use this connector in one of its products. The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Connector Division is selling all of the connectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Connector Division is selling all of the connectors it can produce to outside customers. Also assume that $3 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Chesley Products, Incorporated, Has a Connector Division That Manufactures and Sells