Question
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. |
Case | ||
A | B | |
Division X: | ||
Capacity in units | 200,000 | 200,000 |
Number of units being sold to outside customers | 200,000 | 160,000 |
Selling price per unit to outside customers | $90 | $75 |
Variable costs per unit | $70 | $60 |
Fixed costs per unit (based on capacity) | $13 | $8 |
Division Y: | ||
Number of units needed for production | 40,000 | 40,000 |
Purchase price per unit now being paid to an outside supplier | $86 | $74 |
4.
value: 2.00 points
Required information
Required: |
1-a. | Refer to the data in case A above. Assume in this case that $3 per unit in variable selling costs can be avoided on intracompany sales. |
1-b. | If the managers are free to negotiate and make decisions on their own, will a transfer take place? | ||||
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5.
value: 2.00 points
Required information
2-a. | Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division. |
2-b. | If the managers are free to negotiate and make decisions on their own, will a transfer take place? | ||||
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2-c. | What is the range of transfer price the managers of both divisions should agree? |
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