Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their return on

investment $($ROI$).$ Assume the following information for the two divisions:

Alpha Division:

Capacity in units

Number of units now being sold to

outside customers

Selling price per unit to outside

customers

Variable costs 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

$92,000,412,000,162,000,312,000$

$92,000,412,000,112,000,312,000$

$$54,$$$114,$$$135,$$$74$

$$42,$$$89,$$$100,$$$50$

$$6,$$$15,$$$20,$$$9$

$17,000,42,000,32,000,122,400$

$$51$ $$113$ $ $135**$

$*$Before any purchase discount.

Required:

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 agree to a transfer?

Refer to case $2$ shown above. A study indicates Alpha Division can avoid $$5$ 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 $42,000$ units to Beta Division for $$112$ per unit and Beta Division refuses this price. What will

be the company's loss in potential profits?

Refer to case $3$ shown above. Assume Beta Division is now receiving an $8\%$ 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 agree to a transfer?

d$.$ Assume Beta Division offers to purchase $32,000$ units from Alpha Division at $$120$ per unit. If Alpha Division accepts this price,

would you expect its ROI to increase, decrease, or remain unchanged?

Refer to case $4$ shown above. Assume Beta Division wants Alpha Division to provide it with $122,400$ units of a different product from

the one Alpha Division is producing now. The new product would require $$45$ per unit in variable costs and would require Alpha

Division to cut back production of its present product by $45,900$ units annually. What is Alpha Division's lowest acceptable transfer

price?