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

question 153

Multiple Choice

Yearout 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 in the company, the Pump Division, in one of its products. Data concerning that valve appear below: The Pump Division is currently purchasing 9,000 of these valves per year from an overseas supplier at a cost of $53 per valve.Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $1 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 Valve and Pump Division financially better off than if the Pump Division were to continue buying its valves 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 would accept.
• B) The answer cannot be determined from the information that has been provided.
• C) No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division would accept.
• 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:

Line Management

Managers directly responsible for the production and delivery of a company's products or services.

Staff Management

The function of leading, organizing, and supervising employees to achieve organizational goals efficiently and effectively.

Indirect Responsibilities

Duties or obligations not directly tied to one's primary job function but essential for supporting broader organizational goals.

Value Creation

Value Creation involves processes or activities that increase the worth of a product or service, enhancing its value to consumers and leading to competitive advantage.