Alpha International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for $75 per unit, with the following costs based on its capacity of 200,000 units:

Direct materials

$25.00

Direct labour

15.00

Variable overhead

5.00

Fixed overhead

10.00

Beta is operating at 75% of normal capacity and gama is purchasing 15,000 units of the same component from an outside supplier for $70 per unit.

Calculate the benefit, if any, to beta in selling to gama 15,000 at the outside suppliers price.

Benefit $

per unit

Calculate the lowest price beta would be willing to accept.

Lowest price $

If beta is operating at full capacity what would be the lowest transfer that beta division is willing to accept?

Lowest transfer price $

Assume that a transfer price of $75 is used between beta and gamma. Calculate the effect on the profits of beta, gamma and Alpha International Corporation.

Profits Effects

Beta $

Gamma $

Alpha $