Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: Capacity in units 65,000Selling price to outside customers$98Variable cost per unit$36Fixed cost per unit (based on capacity)$44?The Pool Products Division is currently purchasing 10,000 of these pumps per year from an overseas supplier at a cost of $94 per pump.?Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. Does there exist a transfer price that would make both the Pump and Pool Products Division financially better off than if the Pool Products Division
were to continue buying its pumps from the outside supplier?
A. No, the selling division's price to outside customers is higher than the price that the buying division has to pay its outside supplier.
B. 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.
C. The answer cannot be determined from the information that has been provided.
D. 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.
Answer: D
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