1. Assume a company has two divisions, Division D and Division E. Division D has provided the following information regarding the one product that it manufactures and sells on the outside market:

Selling price per unit (on the outside market)	$ 60
Variable cost per unit	$ 44
Fixed costs per unit (based on capacity)	$ 8
Capacity in units	20,000

Division E could use Division Ds product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division E has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division D makes.

If the companys divisional managers are evaluated based on their divisions profits and Division D is currently selling 15,000 units on the outside market, what is Division Ds lowest acceptable transfer price if it were to sell 4,000 units to Division E?

2.

Assume a company has two divisions, Division B and Division C. Division B has provided the following information regarding the one product that it manufactures and sells on the outside market:

Selling price per unit (on the outside market)	$ 60
Variable cost per unit	$ 44
Fixed costs per unit (based on capacity)	$ 8
Capacity in units	20,000

Division C could use Division Bs product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division C has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division B makes.

If the companys divisional managers are evaluated based on their divisions profits and Division B is currently selling 15,000 units on the outside market, what is Division Cs highest acceptable transfer price if it were to buy 4,000 units from Division B?

3. Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:

Selling price per unit (on the outside market)	$ 61
Variable cost per unit	$ 45
Fixed costs per unit (based on capacity)	$ 4
Capacity in units	20,000

Division B could use Division As product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes.

If that the companys divisional managers are evaluated based their divisions profits and Division A is currently selling 20,000 units on the outside market, what is lowest acceptable transfer price for Division A if it were to sell 4,000 units to Division B?

4. Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:

Selling price per unit (on the outside market)	$ 60
Variable cost per unit	$ 42
Fixed costs per unit (based on capacity)	$ 8
Capacity in units	20,000

Division B could use Division As product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $63 from an outside supplier for a component part that is comparable to the one that Division A makes.

Also assume that the companys divisional managers are evaluated based on their divisions profits and that Division A is currently selling 17,000 units on the outside market. If the managers of the two divisions do not agree on a transfer price and Division B purchases 4,000 component parts from an outside supplier, what would be the effect on the companys profits?

5. Assume a company has only one service department and one operating department. The service departments budgeted and actual variable costs for the period were $80,000 and $82,500, respectively. The budgeted and actual units of service provided to the operating department were 40,000 units and 41,000 units, respectively. How much of the service departments variable costs should not be charged to the operating department?