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 $ 92 $ 74 $ 8 25,000 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 $89 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. Asume 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 1 18 Req 1C Req ID Req 2A and Req 2C Req 2D 28 Req 3A and 38 Req 3C Req 3D Req 1A and Req 1C 1B Req ID Req 2A and Req 2C 2B Req 2D Req 3A and 38 Req 3C Req 3D 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? a. Lowest acceptable transfer price: b. Highest acceptable transfer price Reg 1A and 18 Req 1C > Show less A Req 1A and Req 18 Req ID Req 2A and 28 Req 2C Req 20 Req 3A and 38 Req 3C Req 30 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 now selling only 20,000 speakers per year to outside customers. Range of acceptable transfer prices Are the managers likely to agree on a transfer price? Req 1A and 18 Req 1D > Show less A Req 1A and Req 1C Req 2A and Rec 1D 1B 2B Req 2C Req 2D Req 3A and Req 3C Req 3D 3B From the standpoint of the entire company, should the transfer take place? Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. Should the transfer take place? Show less A Req 1A and Req 1C Req 1D S Req 2A and 1B Req 2C Req 3A and Req 2D 3B Req 3C Req 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? a. Lowest acceptable transfer price Show less A b. Highest acceptable transfer price Req 1A and 18 Req 1C Req 1D Req 2A and 2B Req Req 2D Req 3A and 3B Req 3C Req 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. Range of acceptable transfer prices Are the managers likely to agree on a transfer price? Req 1A and Req 1C 1B Req 1D Req 2A and Req 2C 28 Req 2D Req 3A and Req 3C 38 Req 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. Should the transfer take place? Req 1A and 1B Req 1C Req 2A and Req 1D Req 2C Req 2D Req 3A and 2B Req 3C Req 3D B 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? a. Lowest acceptable transfer price b. Highest acceptable transfer price Show less A Req 1A and 1B Req 1C Req 1D Req 2A and 2B Req 2C Req 2D Req 3A and 38 Re3C Req 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? Range of acceptable transfer prices Are the managers likely to agree on a transfer price? Req 1A and Req 1C 1B Req 1D Req 2A and Req 2C 28 Req 2D Req 3A and Req 3C 38 Req 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. Should the transfer take place?