Question
ME and YOU are two divisions of a company. ME makes two products, Product A and Product B. Product A is commercialized outside the company
ME and YOU are two divisions of a company. ME makes two products, Product A and Product B. Product A is commercialized outside the company and its SP is $170. Product B is only sold to Division YOU, at a unit transfer price of $176. Unit costs for Product B are as follows: Variable materials - 60 Variable labour - 40 Variable overheads - 40 Fixed overheads - 20 Division B has received an offer from another company to supply a substitute for Product B, for $152 per unit. Assuming Division ME can sell as much of Product A as it can produce and the unit profitability of Products A and B are equal, A. What is the minimum and maximum transfer price? B. What will be the effects on profits of the company as a whole if Division YOU accepts the offer?
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