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

Case

	1	2	3	4
Alpha Division:
Capacity in Units	53,000	291,000	101,000	192,000
Number of units now being sold to outside customers	53,000	291,000	78,000	192,000
Selling price per unit to outside customers	100	44	66	45
Variable costs per unit	62	24	42	30
Fixed costs per unit (based on capacity)	25	14	25	6
Beta Division
Number of units needed annually	9800	66,000	19,000	64,000
Purchase price now being paid to an outside supplier	92	44	66*	--

*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 the minimum transfer price for Alpha Division?

		$0
Transfer price _>		$0

b. What is the maximum transfer price for Beta Division?

c. Will the managers agree to a transfer? Yes or No

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.

a-1. What is the minimum transfer price for Alpha Division?

		$0
		0
Transfer Price_>		$0

a-2. What is the maximum transfer price for Beta Division?

b. Assume that Alpha Division offers to sell 66,000 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-1. What is the minimum transfer price for Alpha Division?

Transfer Price _>

a-2. What is the range of transfer price the manager's of both divisions should agree? (Round your answers to 2 decimal places.)

Lowest Transfer Price ________ Highest Transfer Price _______

a-3. Will the managers agree to a transfer?

b. Assume that Beta Division offers to purchase 19,000 units from Alpha Division at $57.70 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 64,000 units of a different product from the one that Alpha Division is now producing. The new product would require $25 per unit in variable costs and would require that Alpha Division cut back production of its present product by 32,000 units annually. What is the lowest acceptable transfer price from Alpha Divisions perspective?

Transfer Price _>