Cooking Company has a decentralized organization with a divisional structure.Two of these divisions are the Appliance Division and the Housing Division.Each divisional manager is evaluated on the basis of ROI.

The company uses the opportunity cost approach to make sure there is goal congruence. The Appliance Division produces a small automatic dishwasher the Housing Division can use in one of its models. Appliance division can produce up to 20,000 of these dishwashers per year.

The variable costs of manufacturing the dishwashers are $98

The Housing Division inserts the dishwasher into the model house and then sells the house.

Required:Answer the requirements under each of the required 3 areas.If you need to make a calculation you must provide cell references to earn credit.

1.Assume that all the dishwashers produced can be sold to external customers for $320 each The Housing Division wants to buy 4,000 dishwashers per year.What should be the transfer price?Why?Make sure you explain your answer. There is no transfer In this situation, because floor (the maximum transfer price) is greater than ceiling (minimum transfer price). So, in this situation the actual price is the price from outcide supplier

2.Refer to requirement #1 above.Assume there is $24 avoidable distribution costs that will not be incurred if the company sells internally. A.Identify the minimum transfer price.

B.Identify the maximumtransfer price.

C.Identify the actual price, assuming that negotiation splits the difference.

3.Assume that the Appliance Division is producing and selling 75% capacity. The Housing Division is currently buying 4,000 dishwashers from an outside supplier at $290 Each Assume that any joint benefit will be split evenly between the two divisions. A.What is the expected transfer price based on this information in #3 ?

B.How much with the profits of Appliance Division increase, assuming that it sells the extra 4,000 dishwashers internally? C.How much with the profits of Housing Division increase, assuming that it buys the4,000 dishwashers internally? D.How much will the profits of the firm increase under this arrangement in #3?