(Appendix 11A) Tommasino Products, Inc

question 102

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 is selling all of the motors it can produce to outside customers.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) The answer cannot be determined from the information that has been provided.
• B) 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.
• C) No, the minimum transfer price that the selling division should be willing to accept exceeds the maximum transfer price that the buying division should be willing to accept.
• D) 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 should be willing to accept.