1a., 1b., and 1c.:

From the standpoint of the selling division, Alpha Division:

Transfer Price > or =

But, from the standpoint of the buying division, Beta Division:

Transfer Price

______________________________________________________________________________________________________________________________________________________________________________________________________________

2a., 2b., and 2c.:

From the standpoint of the selling division, Alpha Division:

Transfer Price > or =

From the standpoint of the buying division, Beta Division:

Transfer Price

In this instance, the range of acceptable transfer prices is:

$____

__________________________________________________________________________________________________________________________________________________________________________________________________________

Problem 11-25 (continued)

2d. The loss in potential profits to the company as a whole will be:

Beta Divisions outside purchase price..........................
Alpha Divisions variable cost on the internal transfer...
Potential added contribution margin lost to the company as a whole..................................................
Number of units...........................................................
Potential added contribution margin and company profits forgone...........................................................

Another way to derive the same answer is to look at the loss in potential profits for each division and then total the losses for the impact on the company as a whole. The loss in potential profits in Alpha Division will be:

Suggested selling price per unit....................................
Alpha Divisions variable cost on the internal transfer...
Potential added contribution margin per unit................
Number of units...........................................................
Potential added contribution margin and divisional profits forgone...........................................................

The loss in potential profits in Beta Division will be:

Outside purchase price per unit....................................
Suggested price per unit inside....................................
Potential cost avoided per unit.....................................
Number of units...........................................................
Potential added contribution margin and divisional profits forgone...........................................................

The total of these two amounts equals the $_____________ loss in potential profits for the company as a whole.

3a. From the standpoint of the selling division, Alpha Division:

Transfer Price > or =

Problem 11-25 (continued)

3b. and 3c.

From the standpoint of the buying division, Beta Division: Transfer Price

In this case, the range of acceptable transfer prices is:

$____

__________________________________________________________________________________________________________________________________________________________________________________________________________

3d. ______________________________________________________________________________________________________________________________________________________________________________________________________

Selling price......................................
Variable costs....................................
Contribution margin..........................
Number of units................................
Added contribution margin................

4. From the standpoint of the selling division, Alpha Division:

Transfer Price > or =

s that emphasize economics and managerial accounting.

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions: Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions