ariable manufacturing costs . . . . . . . . . . . . .	$3.00
Variable selling and administrative costs . . . .	$0.80
Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	650,000	units
Current production . . . . . . . . . . . . . . . . . . . . .	650,000	units

For internal transfers, the selling and administrative costs are reduced to $0.25 per unit.

TL Electronics is a manufacturer with two departments: Computer Chips and Cell Phones. The computer chip that is produced in the Chips Department can be sold to customers at $7.25 per chip. The costs associated with the computer chips are as follows:

The Cell Phone Department has been purchasing the chips that it needs for 5.00 per chip from CompuParts, but the manager was thinking that if the Chips Department could supply the chips for less than what CompuParts is asking, then they would arrange a transfer between departments instead of giving the business to an external company.If the Cell Phone Department needed 160,000 computer chips and current production in the Chips Department was 320,000 chips, should a transfer take place? If so, at what price? What other qualitative factors might need to be considered?

First, let's detThe minimum transfer price is ...?$

First, let's determine if a transfer should take place. Begin by determining the minimum transfer price.

The minimum transfer price is .?

The internal transfer .take place.

The price for the internal transfer should fall between $nothing less than or equals

and

less than or equals $nothing .

What other qualitative factors might need to be considered?

Other factors to consider would be the relationship that the Cell Phone Division has with its .Chips Division

customers external supplier of chips . If the Chips Division is only able to transfer chips profitably in the long term profitably in the short term unprofitably , will the Cell Phone Division be able to extend the pricing

return to its external supplier for additional orders?

The Chips Division may also require some downtime for equipment maintenance or other things (perhaps summer vacations for employees, for example) and a reduced workload for a short period may beunwelcome, as the division manager wants the department to run at capacity

welcome and needed for long term efficiency

.