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EPP Products, Inc., has a Processor Division that manufactures and sells a standard processor that could be used by another division in the company, the
EPP Products, Inc., has a Processor Division that manufactures and sells a standard processor that could be used by another division in the company, the Display Division, in one of its products. Data concerning the Processor Division's standard processor are below: Processor Division's 125,000 capacity in units Selling price to outside customers $265 per unit Variable cost per unit $112 Fixed cost per unit (at $42 full capacity) Display Division is currently purchasing 15,000 of these standard processors per year from an external supplier at a cost of $260 per processor. However, Display Division must also pay $10 per processor for shipping charges when it purchases the units from the external supplier. This shipping charge could be avoided if Display Division purchased the processors internally, Assume Processor Division is currently operating at capacity and selling all the standard processors it can produce to outside customers. Is there a transfer price that would make both the Processor Division and Display Division better off than if the Display Division were to continue buying its processor from the outside supplier? Yes, both divisions are always better off with internal trade regardless of whether the selling division has enough idle capacity to handle all the buying division's needs Yes, the minimum transfer price the selling division should be willing to accept is less than the maximum transfer price the buying division should be willing to pay No, the minimum transfer price the selling division should be willing to accept exceeds the maximum transfer price the buying division should be willing to accept The answer cannot be determined from the information provided
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