Exercise $11-3($Algo$)$ Transfer Pricing Basics $[$L$011-3]$

Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and

cost data on the speaker follow:

Sako Company has a Hi$-$Fi Division that could use this speaker in one of its products. The Hi$-$Fi Division will need $5,000$

speakers per year. It has received a quote of $$129$ per speaker from another manufacturer. Sako Company evaluates

division managers on the basis of divisional profits.

Required:

Assume the Audio Division sells only $20,000$ speakers per year to outside customers.

a$.$ From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the $Hi-Fi$

Division?

b$.$ From the standpoint of the Hi$-$Fi Division, what is the highest acceptable transfer price for speakers acquired from the

Audio Division?

c$.$ What is the range of acceptable transfer prices $($if any$)$ between the two divisions? If left free to negotiate without

interference, would you expect the division managers to voluntarily agree to the transfer of $5,000$ speakers from the

Audio Division to the Hi$-$Fi Division?

d$.$ From the standpoint of the entire company, should the transfer take place?

Assume the Audio Division is selling $22,500$ speakers per year to outside customers.

a$.$ From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the $Hi-Fi$

Division?

b$.$ From the standpoint of the Hi$-$Fi Division, what is the highest acceptable transfer price for speakers acquired from the

Audio Division?

c$.$ What is the range of acceptable transfer prices $($if any$)$ between the two divisions? If left free to negotiate without

interference, would you expect the division managers to voluntarily agree to the transfer of $5,000$ speakers from the

Audio Division to the Hi$-$Fi Division?

d$.$ From the standpoint of the entire company, should the transfer take place?

Assume the Audio Division is selling $25,000$ speakers per year to outside customers.

a$.$ From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the $Hi-Fi$

Division?

b$.$ From the standpoint of the Hi$-$Fi Division, what is the highest acceptable transfer price for speakers acquired from the

Audio Division?

c$.$ What is the range of acceptable transfer prices $($if any$)$ between the two divisions? If left free to negotiate without

interference, would you expect the division managers to voluntarily agree to the transfer of $5,000$ speakers from the

Audio Division to the Hi$-$Fi Division?

d$.$ From the standpoint of the entire company, should the transfer take place?

Complete this question by entering your answers in the tabs below.

Assume the Audio Division sells only $20,000$ speakers per year to outside customers.

a$.$ From the standpoint of the Audio Division, what is the lowest acceptable transfer price

for speakers sold to the Hi$-$Fi Division?

b$.$ From the standpoint of the Hi$-$Fi Division, what is the highest acceptable transfer price

for speakers acquired from the Audio Division?