Liapis Products, Incorporated, Has a Valve Division That Manufactures and Sells

question 333

Essay

Liapis Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division, the Pump Division, in one of its products. Data concerning that valve appear below:
The Pump Division is currently purchasing 12,000 of these valves per year from an overseas supplier at a cost of $62 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers. What is the acceptable range, if any, for the transfer price between the two divisions?
c. Assume again that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $7 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?

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