Business

Enrique Hernandez

25 April, 05:20

Ganus Products, Inc., has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another division in the company, the Electronics Division, in one of its products. Data concerning that relay appear below: Capacity in units 55,000 Selling price to outside customers $ 43 Variable cost per unit $ 13 Fixed cost per unit (based on capacity) $ 25 The Electronics Division is currently purchasing 7,700 of these relays per year from an overseas supplier at a cost of $40 per relay. Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $5 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 Relay and Electronics Division financially better off than if the Electronics Division were to continue buying its relays from the outside supplier?