Inner Solar Products Inc. consists of three decentralized divisions: Mercury Division, Venus Division, and Earth Division. You are the Venus Division Manager. Ms. Sol, President of Inner Solar Products, has given the managers of the three divisions authority to decide whether to sell outside the company or among themselves at an internal price determined by the division managers. Annual bonuses for the division managers are tied to individual division profit measures. Market conditions are such that sales made internally or externally will not affect market or transfer prices. Intermediate markets will always be available for Mercury, Venus, and Earth to purchase their manufacturing needs or sell their product.

As manager of the Venus Division, you are currently considering the two alternative orders presented below:

• The Earth Division needs 3,000 units of a motor that can be supplied by the Venus Division. To manufacture these motors, Venus would purchase components from the Mercury Division at a price of $1,200 per unit; Mercury's variable cost for these components is $600 per unit. Venus Division will further process these components at a variable cost of $1,000 per unit.
  • If the Earth Division cannot obtain the motors from Venus Division, it will purchase the motors from Pluto Company which has offered to supply them to Earth at a price of $3,000 per unit. Pluto Company would also purchase 3,000 components from Mercury Division at a price of $800 for each of these motors; Mercury's variable cost for these components is $400 per unit.
• The Neptune Company wants to place an order with the Venus Division for 3,500 similar motors at a price of $2,500 per unit. Venus would again purchase components from the Mercury Division at a price of $1,000 per unit; Mercury's variable cost for these components is $500 per unit. Venus Division will further process these components at a variable cost of $800 per unit.

The Venus Division's plant capacity is limited, and your division can accept either the Neptune contract or the Earth order, but not both. Both you and Ms. Sol agree that it would not be beneficial in the short or long run to increase capacity.

Required: Use the Excel worksheet provided with the exam to provide support for answering the following questions. Be sure to write your answers in the boxes below each question.

1. Purely from your perspective as the Venus Division Manager, determine whether you should (1) sell motors to the Earth Division at the prevailing market price ($3,000), or (2) accept the Neptune Company contract. Provide summary calculations in the answer box below. Your Excel worksheet must provide detailed support your answer with appropriate calculations.

2. From Ms. Sols company-wide perspective as the Inner Solar Products President, determine whether the Venus Division should (1) sell motors to the Earth Division at the prevailing market price ($3,000), or (2) accept the Neptune Company contract. Provide summary calculations in the answer box below. Your Ecel worksheet must provide detailed support your answer with appropriate calculations.

3. Briefly discuss two strategic factors Inner Solar Products should consider as you (Venus Division Manager) and the Earth Division Manager make your respective decisions.

Venus Division: Number of units Transfer Out/ Sales Price Transfer In Cost from Mercury Div Additional Variable Costs $ $ $ Transfer to Earth Div 3,000 3,000 1,200 1,000 $ $ $ Outside Sale to Neptune 3,500 2,500 1,000 800 Earth Division: Acquire from Venus Div $ 3,000 Outside Purchase from Pluto $ 3,000 Transfer In / Purchase Cost Mercury Division: Outside Sale to Pluto Transfer to Venus Div Earth Product $ 1,200 $ 600 Transfer to Venus Div Neptune Product 1,000 500 800 Transfer / Sales Price Variable Costs $ $ $ $ 400 Venus Division: Number of units Transfer Out/ Sales Price Transfer In Cost from Mercury Div Additional Variable Costs $ $ $ Transfer to Earth Div 3,000 3,000 1,200 1,000 $ $ $ Outside Sale to Neptune 3,500 2,500 1,000 800 Earth Division: Acquire from Venus Div $ 3,000 Outside Purchase from Pluto $ 3,000 Transfer In / Purchase Cost Mercury Division: Outside Sale to Pluto Transfer to Venus Div Earth Product $ 1,200 $ 600 Transfer to Venus Div Neptune Product 1,000 500 800 Transfer / Sales Price Variable Costs $ $ $ $ 400