. 1) Calculate the operating incomes for the mining and metals divisions for the 200,000 units of toldine transferred under the following transfer-pricing methods: (a) market price and (b) 110% of full manufacturing cost. [2, Suppose Ajax rewards each division manager with a bonus, calculated as 1% of division operating income lif positive) what the amount of bonus that will be paid to each division manager under the transfer-pricing methods in requirement 1 Which transfer-pricing method will each division manager prefer to use? 3/5 an The Slate Company manufactures and sells television sets. Its assembly division (AD buys television screens from the screen division (SD) and assembles the TV sets. The SO, which is operating at capacity, incurs an incremental manufacturing cost of $85 per screen. The SD can sell all its output to the outside market at a price of $120 per screen, after incurring a variable marketing and distribution cost of $28 per screenif the AD purchases screens from outside suppliers at a price of $120 per screen, it will incur variable purchasing cost of $27 per screen. Slate's division managers can act autonomously to maximize their own division's operating income REQUIRED What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? (1) (2) What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD (3) Now suppose that the SD can sell only 80% of its output capacity of 40,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sel more than 40,000 TV sets per month (a) which the SD manager would be What is the minimum transfer price willing to sell screens to the AD? (b) From the point of view of Slate's management, how much of the SD output hould be transferred to the AD (4) f Slate mandates the SD and AD managers to-split the difference" on the minimum and maximum transfer prices they would be wiling to negotiate over, what would be the resulting transfer price? Does this price achieve the outcome desired in requirement 300)? 11. The Alison-Chambers Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division's output both to outsiders and to other divisions of Allison-Chambers. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A However, when informed that division A is increasing its selling price to $150, division C's manager decides to purchase the enpine component from external suppiers Division C can purchase the component for $135 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A's manager appeals to top management
