Question
Ike Company is a laptop assembly company, which has two main divisions, namely the Microchips Division (DM) and the Assembly Division (DP). Each division is
Ike Company is a laptop assembly company, which has two main divisions, namely the Microchips Division (DM) and the Assembly Division (DP). Each division is given the authority to maximize its revenue/profit. DM manufactures chips and is currently operating at full capacity of 25,000 units where all of its products are exported overseas. Data from DM for 2021 is as follows: Manufacturing costs: Variable IDR 65,000/chip Fixed IDR 11,000/chip (calculated/divided according to total capacity) Non-manufacturing costs: Marketing costs Rp.9,000/chip (applies to export) Shipping costs Rp.4,000/chip (if sending to internal DP) Selling price to outside Rp.103,000/chip DP as the laptop component assembly division has so far received chip supplies from local vendors with a purchase price of Rp. 103,000 per unit plus a shipping cost of Rp. 8,000 per unit. DP wants to be able to get supply of chips at lower prices, one of which is from the Microchips Division. Questions: 1. If the DP buys chips from the DM, what is the minimum transfer price per unit that the DM can offer to the DP? Please provide details of the calculation of the minimum price! (4) 2. What is the maximum transfer price per unit from a down payment perspective? Give details of the calculation of the maximum price! (3) 3. If the DP asks for a chip purchase price of Rp. 99,000 per unit, can the DM accept it? Give the analysis! (5) 4. Assume that DM currently only exports 80%, so it still has 20% more capacity than the total 25,000 units: a. What is the minimum transfer price per unit for this extra capacity? (3) b. Ike's management wants the company's overall profit to increase. The Director of Operations said that DM should have sold all of its products to DP so that there would be cost savings. 1). Do you agree with the Director of Operations statement? (3); 2). Does the decision benefit each Division?. Give an explanation! (2) (Hint: You don't need to provide a profit/loss calculation, just a brief explanation). c. If negotiations are carried out between the two divisions, what is the recommended transfer price range if the Director of Operations implements a no-export policy (DM must sell all of its products to DP)? Give an explanation! (5)
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