What maximum transfer price would the calculator division accept? If the battery
ID: 2432066 • Letter: W
Question
What maximum transfer price would the calculator division accept? If the battery division is operating at capacity (selling all of the batteries to outside customers) what minimum transfer price would the battery division accept? If the battery division has enough excess capacity to provide the calculator division with batteries without impacting their regular demand, what minimum transfer price would the battery division accept?
What maximum transfer price would the calculator division accept? If the battery division is operating at capacity (selling all of the batteries to outside customers) what minimum transfer price would the battery division accept? If the battery division has enough excess capacity to provide the calculator division with batteries without impacting their regular demand, what minimum transfer price would the battery division accept?
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Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is $6. The Battery Division also sells to outside customers. The sales price is $6, and the variable cost is $3. The Battery Division has excess capacity.
Explanation / Answer
Maximum transfer price that calculator division would accept is $5 since batteries can be bought from the outside supplier at $5. Hence, calculator division would not be willing to pay a price more than $5
If the battery division is operating at full capacity i.e. selling all of the batteries to outside customers, minimum price that Battery division would accept is $6 since Battery division is selling the batteries at a price of $6 per battery. Since Battery division is operating at full capacity, if it sells batteries to Calculator division, its outside sales would get reduced. Hence, Battery division would not like to sell batteries to Calculator division at a price less than $6 per battery.
If the Battery division has excess capacity to provide Calculator division batteries without impacting their regular demand, then minimum transfer price that Battery division would accept is $3 because variable cost of producing the battery is $3. In this case, Battery division has excess capacity which can be used to make batteries for the Calculator division. Hence, Battery division would supply batteries to the Calculator division at their variable cost of production at no profit no loss basis.
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