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

question 255

Essay

Prejean Products, Incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay. Data concerning that relay appear below:
The company has a Electronics Division that could use this relay in one of its products. The Electronics Division is currently purchasing 9,000 of these relays per year from an overseas supplier at a cost of $74 per relay.
Required:
a. Assume that the Relay Division has enough idle capacity to handle all of the Electronics Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $13 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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Definitions:

Les Très Riches Heures

An illuminated manuscript book of hours, considered one of the masterpieces of the International Gothic period, made in France for the Duke of Berry.

Portinari Altarpiece

A celebrated triptych painted by Hugo van der Goes, representing a religious scene, notable for its detailed portrayal of the Portinari family and extensive symbolic elements.

Hugo Van Der Goes

A Northern Renaissance painter from the Netherlands, best known for his work "The Adoration of the Kings" and contributions to the development of realistic portraiture and landscapes.

Dieric Bouts

A Dutch painter who was active in the 15th century, known for his religious scenes and for his role in the development of the Early Netherlandish painting style.