Zumsteg Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump. Data concerning that pump appear below:
The company has a Pool Products Division that could use this pump in one of its products. The Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas supplier at a cost of $81 per pump.
Required:
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?

Question

Zumsteg Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump. Data concerning that pump appear below:
  The company has a Pool Products Division that could use this pump in one of its products. The Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas supplier at a cost of $81 per pump.
Required:
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?

Quizplus · Accepted Answer

The Answer of Zumsteg Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump. Data concerning that pump appear below:
  The company has a Pool Products Division that could use this pump in one of its products. The Pool Products Division is currently purchasing 7,000 of these pumps per year from an overseas supplier at a cost of $81 per pump.
Required:
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?