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 2 56,000 312,000 104,000 194,000 56,000 312,000 B1,000 194,000 Alpha Division: Capacity in units Number of units now being sold to outside customers Selling price per unit to outside customers Variable conto 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 $ $ 99 $ 63 $ 40 $ 19 $ 6) S 38$ 43 28 $ 23 $ 8 $ 20$ 4 10,400 67,000 19,000 56,000 $ 895 63 "Before any purchase discount Required: 1. Refer to cose 1 shown above Alpha Division con avoid $6 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 $4 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 67,000 units to Beta Division for $39 per unit and that Beto 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 19,000 units from Alpha Division at $54.85 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 56,000 units of a different product from the one Alpha Division is producing now. The new product would require $24 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is Alpha Division's lowest acceptable transfer price? 1. Refer to case 1 shown above. Alpha Division can avold $6 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? Show less 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) There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: Transfer price s Will the managers agree to the trade? Yes No D. What IS highest c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect an between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 67,000 units to Beta Division for $39 per unit and that Beta Division What will be the loss in potential profits for the company as a whole? Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price DK t ces Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below: Transfer price s s Will the managers agree to the trade? OYes | ONO Loss in potential profits for the company 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 19,000 units from Alpha Division at $54.85 per unit. If Alpha Division accepts this price, would you expect its Rol to increase, decrease, or remain unchanged? (Round your final answers to 2 decimal places.) Show less Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price a Identify the range of acceptable fer prices (if any) There is not a range of acceptable transfer prices There is a range of acceptable transfer prices as shown below: Transfer price s s Will the managers agree to the trade? Yes ONO Division A's ROI should Increase O Decrease Reg 1A to 1C Reg 2 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 56,000 units of a different product from the one Alpha Division is producing now. The new product would require $24 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is Alpha Division's lowest acceptable transfer price? Show less Lowest acceptable transfer price
