Gauani Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector. Data concerning that detector appear below:
The company has a Commercial Security Division that could use this detector in one of its products. The Commercial Security Division is currently purchasing 5,000 of these detectors per year from an overseas supplier at a cost of $65 per detector.
Required:
a. Assume that the Detector Division has enough idle capacity to handle all of the Commercial Security Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Detector Division is selling all of the detectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?

Question

Gauani Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector. Data concerning that detector appear below:
  The company has a Commercial Security Division that could use this detector in one of its products. The Commercial Security Division is currently purchasing 5,000 of these detectors per year from an overseas supplier at a cost of $65 per detector.
Required:
a. Assume that the Detector Division has enough idle capacity to handle all of the Commercial Security Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Detector Division is selling all of the detectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?

Quizplus · Accepted Answer

The Answer of Gauani Products, Inc., has a Detector Division that manufactures and sells a number of products, including a standard detector. Data concerning that detector appear below:
  The company has a Commercial Security Division that could use this detector in one of its products. The Commercial Security Division is currently purchasing 5,000 of these detectors per year from an overseas supplier at a cost of $65 per detector.
Required:
a. Assume that the Detector Division has enough idle capacity to handle all of the Commercial Security Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Detector Division is selling all of the detectors it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?