(Appendix 11A) Royal 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 6,000 of these connectors per year from an overseas supplier at a cost of $65 per connector.
-What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?
A) $35 per unit
B) $65 per unit
C) $56 per unit
D) $21 per unit

Question

(Appendix 11A) Royal 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 6,000 of these connectors per year from an overseas supplier at a cost of $65 per connector.
-What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?
A) $35 per unit 
B) $65 per unit 
C) $56 per unit 
D) $21 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 < $65 per unit