Chesley Products, Incorporated, Has a Connector Division That Manufactures and Sells

question 154

Essay

Chesley Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
The company has a Transmission Division that could use this connector in one of its products. The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $82 per connector.
Required:
a. Assume that the Connector Division has enough idle capacity to handle all of the Transmission Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Connector Division is selling all of the connectors 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 Connector Division is selling all of the connectors it can produce to outside customers. Also assume that $3 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:

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance, which is the main constituent of Earth's hydrosphere and the fluids of most living organisms.

Distribution

The process of making a product or service available to consumers through a supply chain and marketing channels.

Marginal Rate

Often linked to taxation or utility, it is the rate applied to the next dollar of income or the next unit of consumption.

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Casual garments with short sleeves, typically made of cotton, characterized by their T-shaped design.