Henderson Company manufactures electronics. The Calculator Division (an investme

Question

Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is $5. The transfer price to purchase from the Battery Division is S6. The Battery Division also sels to outside customers. The sales price $6·and the variable cost $3. The Battery Division has excess capacity. Read the requirements Requirement 1. Should the Calculator Division purchase from the Battery Division or the outside vendor? A. The Calculator Division should purchase from the outside vendor as long as the transfer price is $5.00 or less because the Banery Divison has excess ca O B. The Calculator Division should purchase from the Battery Division as long as the transfer price is $5.00 or less because the Battery Division has excess 0 C The Calculator Division should purchase from the Battery Division as long as the transfer price s S6.00 or less becase the Battery Dison has ex O D The Calculator Division should purchase from the outside vendor as long as the transfer proe is S O or more becase the aney been speng at y capacity capacity Requirement 2. If Henderson Company allows division managers to negotiate transfer prices, what is the maximum transfer price the manager of the Caiculator Division should consider? The maximum transfer price the Calculator Division should consider is Requirement 3. What is the minimum transfer price the manager of the Battery Division should consider? The minimum transfer price the Battery Division should consider is Requirement 4. Does your answer to Requirement 3 change if the Battery Division is operating at capacity Click to select your answer 10 20 F3 FS F6 2 3 4 8 9

Explanation / Answer

1. Should purchase from outside vendor as cost to purchase from calculator division is more by one dollar.

Option b should be choose:

The calculator division should purchase from battery division as the transfer price is 5 or less because the battery division has excess capacity.

2. Maximum transfer price should considered by calculator division is $5, as on this price it obtain the batteries from outside vendor.

3.

The minimum transfer price the battery division should consider is $3, it's variable cost.

4.

It battery division is operating at capacity, then the minimum transfer price should be $6, which is the sales price to outside customers.

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