Exercise 11-3 (Algo) Transfer Pricing Basics [LO11-3] 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: Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units $ $ $ 80 62 25,800 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 $77 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. 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? 2 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? 3. 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. Req 1A and 1B Reg 10 Req 10 Reg 2A and 2B Reg 2C Reg 2D Reg 3A and 3B Reg 3C Reg 3D 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? Show less A Lowest acceptable transfer price Highest acceptable transfer price b. Reg 1A and 1B Reg 10 Req 1D Reg 2A and 2B Reg 20 Reg 2D Reg 3A and 3B Reg 3C Reg 3D 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? Assume the Audio Division is selling 22,500 speakers per year to outside customers. Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below. Transfer price s Are the managers likely to agree on a transfer price? Yes No Req 1A and 1B Reg 10 Reg 1D Reg 2A and 2B Reg 2c Reg 2D Reg 3A and 3B Reg 3C Reg 3D 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. Transfer should take place Transfer should not take place. Reg 1A and 1B Reg 10 Reg 1D Req 2A and 2B Reg 2c Reg 2D Reg 3A and 3B Reg 3C Reg 3D 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 b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? Division? Show less a. b. Lowest acceptable transfer price Highest acceptable transfer price Reg 1A and 1B Reg 10 Reg 1D Reg 2A and 2B Reg 20 Reg 2D Reg 3A and 3B Reg 3C Reg 3D 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? Assume the Audio Division is selling 25,000 speakers per year to outside customers. Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below. Transfer price s Are the managers likely to agree on a transfer price? Yes ONO Complete this question by entering your answers in the tabs below. Req 1A and 1B Reg 10 Req 1D Reg 2A and 2B Reg 20 Reg 2D Reg 3A and 3B Reg 30 Reg 3D 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. Transfer should take place. Transfer should not take place.