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Ganus Products, Incorporated, has a Relay Division that manufactures and sells a number of products, including a standard relay that could be used by another
Ganus Products, Incorporated, 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
Selling price to outside customers $
Variable cost per unit $
Fixed cost per unit based on capacity $
The Electronics Division is currently purchasing of these relays per year from an overseas supplier at a cost of $ per relay.
Assume that the Relay Division is selling all of the relays it can produce to outside customers. Also assume that $ 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?
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