Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Exercise 1 1 - 3 ( Algo ) Transfer Pricing Basics [ LO 1 1 - 3 ] Sako Company's Audio Division produces a speaker
Exercise Algo Transfer Pricing Basics LO
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 HiFi Division that could use this speaker in one of its products. The HiFi Division will need speakers per
year. It has received a quote of $ per speaker from another manufacturer. Sako Company evaluates division managers on the basis
of divisional profits.
Required:
Assume the Audio Division sells only 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 HiFi Division?
b From the standpoint of the HiFi 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 speakers from the Audio Division to the HiFi Division?
d From the standpoint of the entire company, should the transfer take place?
Assume the Audio Division is selling 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 HiFi Division?
b From the standpoint of the HiFi 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 speakers from the Audio Division to the HiFi Division?
d From the standpoint of the entire company, should the transfer take place?
Assume the Audio Division is selling 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 HiFi Division?
b From the standpoint of the HiFi 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 speakers from the Audio Division to the HiFi 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 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 HiFi
Division?
b From the standpoint of the HiFi Division, what is the highest acceptable transfer price for speakers acquired from the
Audio Division?
a Lowest acceptable transfer price
b Highest acceptable transfer price
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started