n Cases 1 to 3 below, assume that Division A has a product that can be sold erther to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own division's ROI, The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Treat each case independently? Required: 1. Refer to Case 1A study has indicated that Division A can avoid $5 per une in variable costs on any sales to Division B b. What is the minimum transfer price for Division A? b. What is the maximum transfer price for Division B? Wil the managers agree to a transfer? Yes c. Will the managers agree to a transter? Yes No 2. Refer to Case 2. Assume that Division A can avoid $4 per unit in variable costs on any sales to Division B. a-1. What is the minimum transfer price for Division A? 0.2. What is the maximum transfer price for Division B? e-3. It is assumed that managers are co-operative and understand their own business. Would you expect any disagreement between the two divisional managers over what the transfer price should be? Yes No b. Assume that Division A offers to sell 70,000 units to Division B for $38 per unit and that Division B refuses this price What wilt be the loss in potential profits for the company as a whole? . Assume that Division A offers to sell 70,000 units to Division B for $38 per unit and that Division B refuses this price. What will be he loss in potential profits for the compary as a whole? 3. Refer to Case 3 . Assume that Division B is now receiving a 5% price discount from the outside supplier. a-1. What is the minimum transter price for Division A? 0-2. What is the range of transfer price the manager's of both divisions should agree? a-3. It is assumed that managers are co-operative and understand their own business. Will the managers agree to a transfer? Yes No b. Assume that Division B offers to purchase 20,000 units from Division A at $52 per unit if Division A accepts this price, would you Expect its ROI to increase, decrease, or remain unchanged? -3. It is assumed that managers are co-operative and understand their own business. Will the managers agree to a transfer? Yes No b. Assume that Division B offers to purchase 20,000 units from Division A at $52 per unit If Division A accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? 4. Refer to Case 4. Assume that Division 8 wants Division A to provide it with 60,000 units of a different product from the one that pivision A is now producing. The new product would require $25 per unit in varlable costs and would require that Division A cut back production of its present product by 30,000 units annualy, What is the lowest acceptable transfer price from Division A's perspective? (Round your intermediate and final onswers to 2 decimal places.)
