Harper Company has two Divisions namely Division X and Division Y. Division X makes speakers and Division Y makes stereo sets. Division X is currently supplying the external market with speakers at a selling price of $300 per speaker. Division X has variable cost per unit of $200. Division Y has requested 500 speakers from Division X. Division Y can currently purchase speakers in the external market for $300. Division Y has variable costs of $1,000 before deducting the costs of two speakers for each stereo set. Division Y currently sells stereo sets for $3,000 each.

1. Division Y currently requires 600 speakers from Division X. Assuming Division X has sufficient unused capacity to supply Division Y, identify the possible range of transfer prices. 2. What effect would the minimum transfer price and the maximum transfer price from part a have on the profits of Division X and Division Y?

3. What effect would the range of transfer prices chosen have on the profits of the company has a whole if the speakers are transferred internally?

4. What effect would an internal transfer have on the profits of the company as a whole assuming that Division X has excess capacity?

5. Assuming that Division X does not have excess capacity what is the possible range of transfer prices. How will the transfer price/prices chosen affect the profits of Division X, Y and the company as a whole?

6. Assuming that Division X does not have excess capacity and that Division Y requires 200 more speakers that it cannot get in the external market because of a shortage. Division Y has approached Division X about supplying 200 speakers. Is it in the companys best interest for division X to supply the 200 speakers to Division Y? Explain. Give the dollar effect on the companys profits