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

question 216

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 4,550 of these relays per year from an overseas supplier at a cost of $22 per relay.Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $5 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?

• A) No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier.
• B) The answer cannot be determined from the information that has been provided.
• C) 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.
• D) 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.

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Definitions:

Earth Friendly

Describes practices, products, or technologies that are not harmful to the environment and often contribute to sustainability.

Self-grounding

A technique used to prevent electrostatic discharge (ESD) by touching a grounded object before handling sensitive electronic components.

Shock

A sudden and intense disturbance or impact, which can be physical, electrical, or emotional in nature.

Surge Strip

A device designed to protect electronic equipment from voltage spikes by blocking or shorting to ground any unwanted voltages above a safe threshold.