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: 2 58,000 301,000 104,000 207.000 58,000 301,000 78,000 207.000 5 Alpha Division Capacity in unit Namber of units now being sold to outside customers Selling price per unit to outside customers Variable coste per unit Fixed costs per unit (based on capacity Bota Division Number of units needed annually Purchase price now being paid to an outside supplier 99 $ 60 $ 43 27 21 39 22 12 24 4 9.800 70,000 19.000 56,000 900 445 Before any purchase discount Required: 1. Refer to case 1 shown above. Alpha Division can avoid $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? 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 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 70,000 units to Beta Division for $43 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 5% 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 s transfer? d. Assume Beta Division offers to purchase 19,000 units from Alpha Division at $56.75 per unit. If Alpha Division accepts this price, would you expect its Rol to increase, decrease, or remain unchanged? 4. Refer to cose 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 56,000 units of a different product from the one Alpha Division is producing now. The new product would rehuire $22 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is Alpha Division's lowest acceptable transfer price
