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:

*Before any purchase discount.

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 8% 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 29,000 units from Alpha Division at $105 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 121,800 units of a different product from the one Alpha Division is producing now. The new product would require $39 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45,675 units annually. What is Alpha Divisions lowest acceptable transfer price?

Alpha Division: Capacity in units Number of units now being sold to outside customers selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Beta Division: Number of units needed annually Purchase price now being paid to an outside supplier 89,00089,000409,000409,000159,000109,000309,000309,000 $48$36$6$108$83$15$120$85$20$68$44$9 14,00039,00029,000121,800 $45$107$120 Lowest acceptable transfer price Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price Range of acceptable transfer prices $85 Transfer price $110 Will the managers agree to the trade? Yes Division A's ROI should Increase