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:

	Case
	1	2	3	4
Alpha Division:
Capacity in units	80,000	400,000	150,000	300,000
Number of units now being sold to outside customers	80,000	400,000	100,000	300,000
Selling price per unit to outside customers	$ 30	$ 90	$ 75	$ 50
Variable costs per unit	$ 18	$ 65	$ 40	$ 26
Fixed costs per unit (based on capacity)	$ 6	$ 15	$ 20	$ 9
Beta Division:
Number of units needed annually	5,000	30,000	20,000	120,000
Purchase price now being paid to an outside supplier	$ 27	$ 89	$ 75*

*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?

Identify the lowest and highest acceptable transfer prices:
Lowest acceptable transfer price
Highest acceptable transfer price
Range of acceptable transfer prices Options: 27 Transfer price $ 28 $ 27 Transfer price $ 30 $ 28 Transfer price $ 30 None of the these choices are correct
Will the managers agree to the trade? Yes or No