Ganus Products, incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below: Capacity in units Selling price to outside customers Variable cost per unit Fixed cost per unit (based on capacity) The Electronics Division is currently purchasing 8,050 of these relays per year from an overseas supplier at a cost of $42 per relay. 57,500 $ 45 Multiple Choice $ 14 $ 26 Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $6 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Relay and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier? Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. Both divisions would be financially better off if the transfers were to take place. No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier. The answer cannot be determined from the information that has been provided.
Ganus Products, incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below: Capacity in units Selling price to outside customers Variable cost per unit Fixed cost per unit (based on capacity) The Electronics Division is currently purchasing 8,050 of these relays per year from an overseas supplier at a cost of $42 per relay. 57,500 $ 45 Multiple Choice $ 14 $ 26 Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $6 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Relay and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier? Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept. Both divisions would be financially better off if the transfers were to take place. No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier. The answer cannot be determined from the information that has been provided.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A4
Transcribed Image Text:Ganus Products, incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by
another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below:
Capacity in units
Selling price to outside customers
Variable cost per unit
Fixed cost per unit (based on capacity)
The Electronics Division is currently purchasing 8,050 of these relays per year from an overseas supplier at a cost of $42 per relay.
57,500
$.45
$ 14
$ 26
Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $6 in variable expenses can be
avoided on transfers within the company due to reduced shipping and selling costs. Does there exist a transfer price that would make both the Relay
and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier?
Multiple Choice
Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the
buying division would accept. Both divisions would be financially better off if the transfers were to take place.
No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier.
The answer cannot be determined from the information that has been provided.
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