Division T of Clocker Company makes a timer which it sells for $30 to outside customers. The division has supplied the following data concerning the timer:

Division S of Clocker Company is currently buying 5,000 similar timers each month from an overseas supplier at $27 each. Division S would like to acquire its timers from Division T if the price is right.

-Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A)$30 per timer
B)$27 per timer
C)$25 per timer
D)$15 per timer

Question

Division T of Clocker Company makes a timer which it sells for $30 to outside customers. The division has supplied the following data concerning the timer:

Division S of Clocker Company is currently buying 5,000 similar timers each month from an overseas supplier at $27 each. Division S would like to acquire its timers from Division T if the price is right.

-Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A)$30 per timer 
B)$27 per timer 
C)$25 per timer 
D)$15 per timer

Quizplus · Accepted Answer

When operating at capacity, the lowest acceptable transfer price for the selling division is the market price, which is the usual selling price to outside customers.

Division T of Clocker Company Makes a Timer Which It