Shular Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division, the Division, in one of its products. Data concerning that valve appear below:
The company has a Pump Division that could use this valve in one of its products. The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Question

Shular Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division, the Division, in one of its products. Data concerning that valve appear below:
  The company has a Pump Division that could use this valve in one of its products. The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Quizplus · Accepted Answer

The Answer of Shular Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division, the Division, in one of its products. Data concerning that valve appear below:
  The company has a Pump Division that could use this valve in one of its products. The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

Shular Products, Incorporated, Has a Valve Division That Manufactures and Sells