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		106,000				108,000
Number of units being sold to outside customers		106,000				87,000
Selling price per unit to outside customers	$	59			$	28
Variable costs per unit	$	27			$	13
Fixed costs per unit (based on capacity)	$	10			$	5
Division Y:
Number of units needed for production		21,000				21,000
Purchase price per unit now being paid to an outside supplier	$	53			$	26

6.

value: 5.00 points

Required information

Required:

1-a. Refer to the data in case A above. Assume in this case that $2 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?

	Yes
	No

Hints

References

eBook & Resources

Hint #1

Check my work

7.

value: 5.00 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?

	No
	Yes

2-c. What is the range of transfer price the managers of both divisions should agree?