Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below: The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.
What is the maximum price that the Aircraft Products Division should be willing to pay for antennaes transferred from the Antennae Division?

Question

Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below:  The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.
What is the maximum price that the Aircraft Products Division should be willing to pay for antennaes transferred from the Antennae Division?

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 < $57 per unit