The Glass Division of a company makes glass vases which have the following unit costs:
The Florist Division of the company sells cut flowers and uses the glass vases.The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each.The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each.Vases sold outside incur the sales commission; this commission would not be paid on internal transfers.The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase.Is this a good idea for each division? Explain.

Question

The Glass Division of a company makes glass vases which have the following unit costs:
  The Florist Division of the company sells cut flowers and uses the glass vases.The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each.The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each.Vases sold outside incur the sales commission; this commission would not be paid on internal transfers.The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase.Is this a good idea for each division? Explain.

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The Answer of The Glass Division of a company makes glass vases which have the following unit costs:
  The Florist Division of the company sells cut flowers and uses the glass vases.The Florist Division uses 10,000 vases per year and currently buys them from an outside supplier for $4 each.The Glass Division produces and sells 100,000 glass vases per year and sells them on the outside market for $4 each.Vases sold outside incur the sales commission; this commission would not be paid on internal transfers.The Glass Division and the Florist Division managers just met and agreed on a transfer price of $3.75 per vase.Is this a good idea for each division? Explain.

The Glass Division of a Company Makes Glass Vases Which