Toldness Products,Inc.,has a Connector Division that manufactures and sells a number of products,including a standard connector that could be used by another division in the company,the Transmission Division,in one of its products.Data concerning that connector appear below:
The Transmission Division is currently purchasing 11,000 of these connectors per year from an overseas supplier at a cost of $58 per connector.
What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?
A) $51 per unit
B) $58 per unit
C) $22 per unit
D) $29 per unit

Question

Toldness Products,Inc.,has a Connector Division that manufactures and sells a number of products,including a standard connector that could be used by another division in the company,the Transmission Division,in one of its products.Data concerning that connector appear below:
 The Transmission Division is currently purchasing 11,000 of these connectors per year from an overseas supplier at a cost of $58 per connector.
What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?
A) $51 per unit 
B) $58 per unit 
C) $22 per unit 
D) $29 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 < $58 per unit