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 55,000 314,000 105,000 205,000

Number of units now being sold to outside customers 55,000 314,000 80,000 205,000

Selling price per unit to outside customers $ 98 $ 40 $ 64 $ 45

Variable costs per unit $ 60 $ 21 $ 40 $ 32

Fixed costs per unit (based on capacity) $ 24 $ 7 $ 21 $ 6

Beta Division:

Number of units needed annually 9,700 68,000 18,000 62,000

Purchase price now being paid to an outside supplier $ 91 $ 36 $ 64 * ?

*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 $6 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 68,000 units to Beta Division for $35 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 a transfer?

d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $55.80 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 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $29 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is Alpha Division's lowest acceptable transfer price?

Reg 1Atu1r: RegZAtoZD Reg 3Ato3l3 Req4 1. Refer to case 1 shown above. Alpha Division can avoicl $5 per unit in commissions on an'g.r 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 probablilrr agree to a transfer? Show I551 Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price -_ Highest acceptable transfer price -_ Identify the range of acceptable transfer prices {if any}: OThere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below: - e Transfernrice e _ Will the managers agree to the trade? OYes Ohio Reg 2A to ED } Reg 1Ato-1C RquAto-ZD Reg SAtDSD Req4 2. Refer to case 2 shown above. A studi,'r indicates that Alpha Division can avoid $6 per unit in shipping costs on ant:r sales to Beta Division. a. What is Alpha Division's lowest aoceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices [if anv} between the two divisions? Would vou expect anv disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $35 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the compan'gur as a whole? Shall I551 Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price == Highest acceptable transfer price Identify the range of acceptable transfer prices {if any}: OTnere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below: -_--Transrernnce Will the managers agree to the trade? OYes Ohio Loss in potential prots for the --- corn v an ReqlAtulC RquAtoZDlRquAtoBD Reg-4 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 anv] between the two divisions? Will the managers probably:r agree to a transfer? d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $55.80 per unit. IfAlpha Division accepts this price, would you expect its R01 to increase, decrease, or remain unchanged? {Round vourfinal answers to 2 decimal places.) Shmlst Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price -_ - Highest acceptable transfer price -_ Identify the range of acceptable transfer prices {if any}: OThere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below: Will the managers agree to the trade? Division A's RDlshoulcl ODecrease Complete this question by entering your answers in the tabs below. Req 1A to 1C Req 2A to 2D| Req 3A to 3D Req 4 Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $29 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is Alpha Division's lowest acceptable transfer price? Show less A Lowest acceptable transfer price