A selling division produces components for a buying division that is considering accepting a special order for the products it produces. The selling division has excess capacity. The maximum price the buying division would be willing to accept is

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The maximum price the buying division would be willing to accept is the buying division's outside purchase price because it represents the alternative cost that the buying division would incur if it decides to purchase the components externally instead of internally. This price sets the upper limit on what the buying division would be willing to pay the selling division, as paying more than the external market price would not be economically rational given the availability of the same or similar components at a lower cost outside.

A Selling Division Produces Components for a Buying Division That