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Case 1 2 3 4 Division A: Capacity in units 50,000 285,000 105,000 205,000 Number of units now being sold to outside customers 50,000 285,000
Case | ||||
1 | 2 | 3 | 4 | |
Division A: | ||||
Capacity in units | 50,000 | 285,000 | 105,000 | 205,000 |
Number of units now being sold to outside customers | 50,000 | 285,000 | 79,000 | 205,000 |
Selling price per unit to outside customers | $97 | $42 | $64 | $46 |
Variable costs per unit | $59 | $19 | $39 | $32 |
Fixed costs per unit (based on capacity) | $20 | $12 | $21 | $7 |
Division B: | ||||
Number of units needed annually | 10,300 | 71,000 | 22,000 | 64,000 |
Purchase price now being paid to an outside supplier* | $87 | $40 | $64 | |
* Before any purchase discount. |
Required: | |
1. | Refer to case 1. A study has indicated that Division A can avoid $6 per unit in variable costs on any sales to Division B. |
a. | What is the minimum transfer price for Division A? (Omit the "$" sign in your response.) |
Minimum transfer price | $ |
b. | What is the maximum transfer price for Division B? (Omit the "$" sign in your response.) |
Maximum transfer price | $ |
Refer to case 2. Assume that Division A can avoid $5 per unit in variable costs on any sales to Division B. |
c. | What is the minimum transfer price for Division A? (Omit the "$" sign in your response.) |
Minimum transfer price | $ |
d. | What is the maximum transfer price for Division B? (Omit the "$" sign in your response.) |
Maximum transfer price | $ |
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