Asked by Letty Lopez on Jul 28, 2024
Verified
Steinhoff Products, Incorporated, has a Sensor Division that manufactures and sells a number of products, including a standard sensor that could be used by another division in the company, the Safety Products Division, in one of its products. Data concerning that sensor appear below: The Safety Products Division is currently purchasing 4,000 of these sensors per year from an overseas supplier at a cost of $48 per sensor.What is the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division?
A) $51 per unit
B) $37 per unit
C) $48 per unit
D) $14 per unit
Sensor Division
A specialized unit within a company focused on the development, production, and sale of sensor technology.
Safety Products Division
A specialized division within a company focused on the development, manufacture, and distribution of safety-related products.
- Gain insight into the notion of transfer pricing and the determinants that influence the minimum permissible transfer price.
- Investigate how divisional outcomes are influenced financially by internal resource transfers and the distribution of expenses.
Verified Answer
BN
Bre-Bre NorrisJul 29, 2024
Final Answer :
C
Explanation :
The maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division is the cost savings that the transfer provides. The cost savings per sensor would be the difference between the cost of purchasing the sensor from the overseas supplier and the cost of producing the sensor in-house. However, the problem does not provide any information about the cost of producing the sensor in-house. Therefore, the maximum price that the Safety Products Division should be willing to pay for sensors transferred from the Sensor Division is the $48 per unit that the division is currently paying to the overseas supplier. Therefore, the correct answer is C, $48 per unit.
Learning Objectives
- Gain insight into the notion of transfer pricing and the determinants that influence the minimum permissible transfer price.
- Investigate how divisional outcomes are influenced financially by internal resource transfers and the distribution of expenses.
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