(Appendix 11A) Tommasino Products, Inc

question 1

Multiple Choice

(Appendix 11A) Tommasino Products, Inc., has a Motor Division that manufactures and sells a number of products, including a standard motor that could be used by another division in the company, the Automotive Division, in one of its products. Data concerning that motor appear below:
The Automotive Division is currently purchasing 9,000 of these motors per year from an overseas supplier at a cost of $72 per motor.
-Assume that the Motor Division has enough idle capacity to handle all of the Automotive Division's needs.Does there exist a transfer price that would make both the Motor and Automotive Division financially better off than if the Automotive Division were to continue buying its motors from the outside supplier?

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

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