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: CA 103,000 50,000 307.000 50,000 307,000 204,000 204,000 76,000 Alpha Division Capacity in units Number of unito now being sold to outside customers Selling price per unit to outside customers Variable costa per unit Fixed cont per unit (based on capacity) Beta Division Number of units needed annually Purchase price now being paid to an outside supplier 97 $ 60 $ 415 21 $ 615 37$ 43 27 $ $ 20$ 10$ 18$ 3 9,200 69,000 23,000 62,000 $ 88 $ 41 $ 610 Before any purchase discount. Required: 1. Refer to case 1 shown above. Alpha Division can avold $5 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? - What le the anno farrantahla transfer nine ambahen the tandisine the mananaren hat transfer b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $3 per unit in shipping costs on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 69,000 units to Beta Division for $40 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 Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 23,000 units from Alpha Division at $53.56 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? 4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $23 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is Alpha Division's lowest acceptable transfer price
