Assume two divisions of a company, P (producing) and B (buying), that are treated as nvestment centres for performance-evaluation purposes. P division produces a product that can be used by B division. P division's product manufacturing cost is $100.00 per unit (including $20 fixed manufacturing cost per unit). Division P can sell its output externally for $120.00 per unit and incurs a sales commission charge of $5.00 per unit. Currently, Division B can purchase the product from an external supplier at S120.00 per unit plus a $3.00 transportation charge per unit. Division B incurs $20 further processing cost and sells the final product for S190 on the external market. Division B also incurs a variable selling cost of S10 per unit Required: Answer each of the following indepen dent questions. (i Determine whether the transfer is profitable for the company. Assume that division P sells all products to outside customers. Show your calculations (3 marks) (ii) Determine the minimum and maximum transfer prices if division P sells all products to outside customers. Describe the likely reactions of divisional managers towards the transfer. Show your calculations (3 marks) (iii) Determine the minimum and maximum transfer prices if P division currently has sufficient spare capacity to transfer the quantity required by B division. Describe the likely reactions of divisional managers towards the transfer. Show your calculations (3 marks) (iv) Determine the minimum and maximum transfer prices if P division has enough spare capacity to transfer the units required by B division and there is no external market for its product. Describe the likely reactions of divisional managers towards the transfer. Show your calculations (3 marks) Assume two divisions of a company, P (producing) and B (buying), that are treated as nvestment centres for performance-evaluation purposes. P division produces a product that can be used by B division. P division's product manufacturing cost is $100.00 per unit (including $20 fixed manufacturing cost per unit). Division P can sell its output externally for $120.00 per unit and incurs a sales commission charge of $5.00 per unit. Currently, Division B can purchase the product from an external supplier at S120.00 per unit plus a $3.00 transportation charge per unit. Division B incurs $20 further processing cost and sells the final product for S190 on the external market. Division B also incurs a variable selling cost of S10 per unit Required: Answer each of the following indepen dent questions. (i Determine whether the transfer is profitable for the company. Assume that division P sells all products to outside customers. Show your calculations (3 marks) (ii) Determine the minimum and maximum transfer prices if division P sells all products to outside customers. Describe the likely reactions of divisional managers towards the transfer. Show your calculations (3 marks) (iii) Determine the minimum and maximum transfer prices if P division currently has sufficient spare capacity to transfer the quantity required by B division. Describe the likely reactions of divisional managers towards the transfer. Show your calculations (3 marks) (iv) Determine the minimum and maximum transfer prices if P division has enough spare capacity to transfer the units required by B division and there is no external market for its product. Describe the likely reactions of divisional managers towards the transfer. Show your calculations
