1.

Sako Companys Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:

Selling price per unit on the intermediate market	$	104
Variable costs per unit	$	86
Fixed costs per unit (based on capacity)	$	8
Capacity in units		25,000

1. Assume the Audio Division is selling 22,500 speakers per year to outside customers.

a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

Assume the Audio Division is selling 22,500 speakers per year to outside customers. a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

a.	Lowest acceptable transfer price	$
b.	Highest acceptable transfer price	$101

1c.

What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division? Assume the Audio Division is selling 22,500 speakers per year to outside customers.

Identify the range of acceptable transfer prices (if any):
There is a range of acceptable transfer prices as shown below
			Transfer price
Are the managers likely to agree on a transfer price?
Yes

1c. Assume the Audio Division is selling 25,000 speakers per year to outside customers.

a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division?