Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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: Case 1 2 3 4 Alpha Division: Capacity in units 90,000 410,000 160,000 310,000 Number of units now being sold to outside customers 90,000 410,000 110,000 310,000 Selling price per unit to outside customers $ 50 Variable costs per unit $ 38 $ 110 $ 85 $ 125 $ 70 $ 90 $ 46 Fixed costs per unit (based on capacity) $ 6 $ 15 $ 20 $ 9 Beta Division: Number of units needed annually 15,000 40,000 30,000 122,000 Purchase price now being paid to an outside supplier $ 47 $ 109 $ 125* *Before any purchase discount. Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started