Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below: The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.Assume that the Antennae Division is selling all of the antennaes it can produce to outside customers. What should be the minimum acceptable transfer price for the antennaes from the standpoint of the Antennae Division?

A) $40 per unit
B) $63 per unit
C) $57 per unit
D) $22 per unit

Question

Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below:

The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.Assume that the Antennae Division is selling all of the antennaes it can produce to outside customers. What should be the minimum acceptable transfer price for the antennaes from the standpoint of the Antennae Division?

A) $40 per unit
B) $63 per unit
C) $57 per unit
D) $22 per unit

Gurman Boparai · Accepted Answer

Final Answer : B, Explanation :  The minimum acceptable transfer price for the Antennae Division should be equal to or greater than the cost the Aircraft Products Division is currently paying to the overseas supplier, which is $57 per unit. However, the Antennae Division could choose to charge a higher price to maximize its own profits. Therefore, option A and option C are both plausible choices. However, option B, which is $63 per unit, would allow the Antennae Division to earn a profit of $6 per unit (since their cost is $57 per unit) and would still be acceptable to the Aircraft Products Division. Option D, which is $22 per unit, is not a feasible choice as it is below their production cost of $57 per unit.

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