Alpha and Beta are divisions within the same company The managers of both divisions are evaluated based on their return on investment (ROI) Assume the following information for the two divisions Case 1 2 3 4 Alpha Division Capacity in units 92,000 412,000 162,000 312,000 Number of units now being sold to outside customers 92,000 412,000 112,000 312,000 Selling price per unit to outside customers $ 54 $ 114 $ 135 $ 74 Variable costs per unit $ 42 $ 89 $ 100 $ 50 Fixed costs per unit (based on capacity) $ 6 $ 15 $ 20 $ 9 Beta Division Number of units needed annually 17,000 42,000 32,000 122,400 Purchase price now being paid to an outside supplier $ 51 $ 113 $ 135 Before any purchase discount Required Refer to case 1 shown above Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division What is Alpha Division's lowest acceptable transfer price What is Beta Division's highest acceptable transfer price What is the range of acceptable transfer prices (if any) between the two divisions Will the managers agree to a transfer Refer to case 2 shown above A study indicates Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division What is Alpha Division's lowest acceptable transfer price What is Beta Division's highest acceptable transfer price 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 Assume Alpha Division offers to sell 42,000 units to Beta Division for $112 per unit and Beta Division refuses this price What will be the companys loss in potential profits Refer to case 3 shown above Assume Beta Division is now receiving an 8 price discount from the outside supplier What is Alpha Division's lowest acceptable transfer price What is Beta Division's highest acceptable transfer price What is the range of acceptable transfer prices (if any) between the two divisions Will the managers agree to a transfer Assume Beta Division offers to purchase 32,000 units from Alpha Division at $120 per unit If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged Refer to case 4 shown above Assume Beta Division wants Alpha Division to provide it with 122,400 units of a different product from the one Alpha Division is producing now The new product would require $45 per unit in variable costs and would require Alpha Division to cut back production of its present product by 45,900 units annually What is Alpha Divisions lowest acceptable transfer price

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Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their return on investment (ROI). Assume the

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

	Case
1	2	3	4
Alpha Division:
Capacity in units	92,000	412,000	162,000	312,000
Number of units now being sold to outside customers	92,000	412,000	112,000	312,000
Selling price per unit to outside customers	$ 54	$ 114	$ 135	$ 74
Variable costs per unit	$ 42	$ 89	$ 100	$ 50
Fixed costs per unit (based on capacity)	$ 6	$ 15	$ 20	$ 9
Beta Division:
Number of units needed annually	17,000	42,000	32,000	122,400
Purchase price now being paid to an outside supplier	$ 51	$ 113	$ 135*

*Before any purchase discount.

Required:

Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division.
1. What is Alpha Division's lowest acceptable transfer price?
2. What is Beta Division's highest acceptable transfer price?
3. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer?
Refer to case 2 shown above. A study indicates Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.
1. What is Alpha Division's lowest acceptable transfer price?
2. What is Beta Division's highest acceptable transfer price?
3. 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?
4. Assume Alpha Division offers to sell 42,000 units to Beta Division for $112 per unit and Beta Division refuses this price. What will be the companys loss in potential profits?
Refer to case 3 shown above. Assume Beta Division is now receiving an 8% price discount from the outside supplier.
1. What is Alpha Division's lowest acceptable transfer price?
2. What is Beta Division's highest acceptable transfer price?
3. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer?
4. Assume Beta Division offers to purchase 32,000 units from Alpha Division at $120 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
Refer to case 4 shown above. Assume Beta Division wants Alpha Division to provide it with 122,400 units of a different product from the one Alpha Division is producing now. The new product would require $45 per unit in variable costs and would require Alpha Division to cut back production of its present product by 45,900 units annually. What is Alpha Divisions lowest acceptable transfer price?