Cichy Products,Inc.,has a Valve Division that manufactures and sells a number of products,including a standard valve that could be used by another division in the company,the Pump Division,in one of its products.Data concerning that valve appear below:
The Pump Division is currently purchasing 5,000 of these valves per year from an overseas supplier at a cost of $85 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves transferred from the Valve Division?
A) $37 per unit
B) $85 per unit
C) $32 per unit
D) $69 per unit

Question

Cichy Products,Inc.,has a Valve Division that manufactures and sells a number of products,including a standard valve that could be used by another division in the company,the Pump Division,in one of its products.Data concerning that valve appear below:
 The Pump Division is currently purchasing 5,000 of these valves per year from an overseas supplier at a cost of $85 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves transferred from the Valve Division?
A) $37 per unit 
B) $85 per unit 
C) $32 per unit 
D) $69 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 < $85 per unit