Brown Industries has two divisions: the Hank Division and the Murray Division. Information about a component that the Hank Division produces is as follows:
The Hank Division can produce up to 22,000 components per year. The Murray Division needs 1,000 units of the component for a product it manufactures.
Required:

a.
Determine the minimum transfer price that the selling division would be willing to accept.
b.
Determine the maximum transfer price that the buying division would be willing to pay.
c.
If the Hank Division did not have excess capacity, what would be the correct transfer price?

Question

Brown Industries has two divisions: the Hank Division and the Murray Division. Information about a component that the Hank Division produces is as follows:
The Hank Division can produce up to 22,000 components per year. The Murray Division needs 1,000 units of the component for a product it manufactures.
Required:
  
a.
Determine the minimum transfer price that the selling division would be willing to accept.
b.
Determine the maximum transfer price that the buying division would be willing to pay.
c.
If the Hank Division did not have excess capacity, what would be the correct transfer price?

Quizplus · Accepted Answer

The Answer of Brown Industries has two divisions: the Hank Division and the Murray Division. Information about a component that the Hank Division produces is as follows:
The Hank Division can produce up to 22,000 components per year. The Murray Division needs 1,000 units of the component for a product it manufactures.
Required:
  
a.
Determine the minimum transfer price that the selling division would be willing to accept.
b.
Determine the maximum transfer price that the buying division would be willing to pay.
c.
If the Hank Division did not have excess capacity, what would be the correct transfer price?

Brown Industries Has Two Divisions: the Hank Division and the Murray