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 Alpha Division Capacity in units 51,000 313,000 106,000 197,000 1,000 313,000 80,000 197,000 67 $47 Number of units now being sold to outside customers Selling price per unit to outside $ 100 S40 $ $ 63 $ 17 $ customers Variable costs per unit 43 $30 $ 24 $ 9 9,40066,000 23,000 64,000 Fixed costs per unit (based on capacity) $ 23 $ Beta Division Number of units needed annually Purchase price now being paid to Before any purchase discount Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated an outside supplier $ 93 $ 38$6 Required 1. Refer to case 1 shown above. Alpha Division can avoid $4 per unit in commissions on any sales to Beta Division a What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? 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 the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c what is the range of acceptable transfer prices (if any) between the two divisions? would you expect any disagreement be o n the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 66,000 units to Beta Division for $37 per unit and that Beta Division rofuses 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 6% price discount from the outside supplier a What is the lowest acceptable transfer price from the perspective of the Alpha Division? b What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transter prices (if any) between the two divisions? Will the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 23,000 units from Alpha Division at $57.98 per unit If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged
