Question

wetherald products, incorporated, has a pump division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the pool products division, in one of its products. data concerning that pump appear below: capacity in units 61,500 selling price to outside customers $ 109 variable cost per unit $ 66 fixed cost per unit (based on capacity) $ 24 the pool products division is currently purchasing 5,300 of these pumps per year from an overseas supplier at a cost of $87 per pump. assume that the pump division is selling all of the pumps it can produce to outside customers. what should be the minimum acceptable transfer price for the pumps from the standpoint of the pump division? wetherald products, incorporated, has a pump division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the pool products division, in one of its products. data concerning that pump appear below: capacity in units 61,500 selling price to outside customers $ 109 variable cost per unit $ 66 fixed cost per unit (based on capacity) $ 24 the pool products division is currently purchasing 5,300 of these pumps per year from an overseas supplier at a cost of $87 per pump. assume that the pump division is selling all of the pumps it can produce to outside customers. what should be the minimum acceptable transfer price for the pumps from the standpoint of the pump division? $105 $108 $66 $109

Answer 1

The minimum acceptable transfer price for the pumps from the pump division's standpoint is $109, the current selling price to outside customers, as the division is already producing at full capacity.

Step-by-step explanation:

The minimum acceptable transfer price for the pumps from the standpoint of the pump division would be its selling price to outside customers. Since the pump division is currently selling all of the pumps it can produce at $109 each to external customers, selling to the pool products division for less would result in lost profits. Therefore, the minimum transfer price should be at least $109 to ensure that the pump division does not lose revenue from the internal transaction.

It is important to note that the variable cost per unit ($66) and fixed cost per unit ($24) are irrelevant for setting the minimum transfer price because those costs are already accounted for in the external selling price, and the division is at full capacity. However, from an overall company perspective, internal negotiating may lead to different considerations such as opportunity cost and strategic alignment, but from the pump division's perspective, $109 is the minimum acceptable transfer price.