Blitch Products, Incorporated, Has a Screen Division That Manufactures and Sells

Blitch Products, Incorporated, has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below: The Home Security Division is currently purchasing 2,000 of these screens per year from an overseas supplier at a cost of $50 per screen. Assume that the Screen Division has enough idle capacity to handle all of the Home Security Division's needs. Does there exist a transfer price that would make both the Screen and Home Security Division financially better off than if the Home Security Division were to continue buying its screens from the outside supplier?

A) Yes, both divisions are always better off regardless of whether the selling division has enough idle capacity to handle all of the buying division's needs.
B) The answer cannot be determined from the information that has been provided.
C) Yes, the minimum transfer price that the selling division should be willing to accept is less than the maximum transfer price that the buying division would accept.
D) No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier.

Correct Answer:

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