Ganus Products, Incorporated, Has a Relay Division That Manufactures and Sells

question 1

Multiple Choice

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: The Electronics Division is currently purchasing 7,000 of these relays per year from an overseas supplier at a cost of $59 per relay.Assume that the Relay Division is selling all of the relays it can produce to outside customers. 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?

• A) 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 should be willing to accept.
• B) No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept.
• C) Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs.
• D) The answer cannot be determined from the information that has been provided.

Understand the implications of business form selection on liability and tax obligations.

Learn the constraints and flexibilities of franchise agreements, including territorial rights and obligations.

Grasp the role of intellectual property law in franchising.

Understand the factors influencing the choice of business organization form by entrepreneurs.

---

Definitions:

Periodic Inventory System

An accounting method where inventory levels and cost of goods sold are updated at specific intervals, rather than continuously.

Transactions

Financial events or exchanges between parties that have a monetary impact on the financial statements of a business.

Adjusted Trial Balance

A list of all accounts and their balances after adjustments are made, used to prepare financial statements.

Year-End Closing Entries

Journal entries made at the end of an accounting period to prepare the accounts for the next period by clearing out revenues and expenses to the income summary.