2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $4 per unit in shipping costs on any sales to Beta Division.

Assume Alpha Division offers to sell 73,000 units to Beta Division for $39 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 4% price discount from the outside supplier.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 60,000 units of a different product from the one Alpha Division is producing now. The new product would require $26 per unit in variable costs and would require that Alpha Division cut back production of its present product by 30,000 units annually. What is the lowest acceptable transfer price from Alpha Divisions perspective?

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 (ROl). Assume the following information relative to the two divisions Case 3 4 Alpha Division: Capacity in units Number of units now being sold to 54,000 286,000 105, 000 204,000 82,000 204,000 47 outside customers Selling price per unit to outside 54,000 286,000 $ 95 $ $58$ 41 $ 20 63 $ 39 $ customers Variable costs per unit Fixed costs per unit (based on 3 1 19 $ capacity) 22 $ 11 $ Beta Division: Number of units needed annually Purchase price now being paid to 10,200 73, 000 18,000 60,000 40 $ an outside supplier 88 63* Before any purchase discount. Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated 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 (ROl). Assume the following information relative to the two divisions Case 3 4 Alpha Division: Capacity in units Number of units now being sold to 54,000 286,000 105, 000 204,000 82,000 204,000 47 outside customers Selling price per unit to outside 54,000 286,000 $ 95 $ $58$ 41 $ 20 63 $ 39 $ customers Variable costs per unit Fixed costs per unit (based on 3 1 19 $ capacity) 22 $ 11 $ Beta Division: Number of units needed annually Purchase price now being paid to 10,200 73, 000 18,000 60,000 40 $ an outside supplier 88 63* Before any purchase discount. Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated