Asked by Brooke Candia on Jul 28, 2024
Verified
Fingado Products, Incorporated, has a Detector Division that manufactures and sells a number of products, including a standard detector that could be used by another division in the company, the Commercial Security Division, in one of its products. Data concerning that detector appear below: The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector.Assume that the Detector Division is selling all of the detectors it can produce to outside customers. What should be the minimum acceptable transfer price for the detectors from the standpoint of the Detector Division?
A) $32 per unit
B) $98 per unit
C) $91 per unit
D) $83 per unit
Transfer Price
The price charged for goods and services sold between departments or subsidiaries of the same company.
Detector Division
A specialized unit within a company focused on detecting and analyzing specific types of information or signals.
Outside Customers
Individuals or entities that purchase a company's goods or services but are not part of the company itself.
- Review the fiscal merits of internal transfers between the selling and buying units.
Verified Answer
We do not have any information about the cost to produce the detector, so we cannot use that as a basis for setting the transfer price. Therefore, the best option is to set the transfer price at the market price of the detector, which is the price that the outside customers are paying. The minimum acceptable transfer price should be at least $91 per detector. However, since the outside customers are willing to pay more than $91 per detector, the transfer price could be set higher. Option B of $98 per unit is the closest option to the market price and would be the best choice.
Learning Objectives
- Review the fiscal merits of internal transfers between the selling and buying units.
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