Answer Question

AIP 6.11 Transfer Price LID is UK Pumps is a multidivisional firm that manufactures and installs chemical piping and pump systems. The Valve Division makes a single standardized valve. Two divisions. the Valve Division and the installation Division, are currentlyr involved in a transferpricing dispute. Last year. half of the Valve Division's output was sold to the installation Division for 40 and the remaining halfwas sold to outsiders for 60. The existing transfer price of 40 per pump has been set through a negotiation process between the two divisions and also with the involvement of senior management. The installation Division has received a hid from an outside valve manufacturer to supply it with an equivalent valve for 35 each. The manager of the Valve Division has argued that if it is foroed to meet the external price of 35, it will lose money on internal sales. The operating data for last year for the Valve Division are as follows: Valve Division Dperating Statement Last Year 266 a insialioiion Division lo Outside Sales 20,000 a 540 $000,000 20,000 0' 260 El 00,000 Variable oasis a 30 {600,000} (500,000!I Fixed costs {1350(1)} [l 35,000} Gross margin E 155.000 E" $55,000 Analyze the situation and recommend a course of action. 'What should the Installation Division managers do? 1iiifhat should the Valve Division managers do? In your opinion, what should UK Pumns' senior managers do