Part Nine (Transfer Pricing) Memories, Inc. has decided to create a wholly owned subsidiary, Memories Boutique, Inc., (MBI) to sell the figurines directly to the public. In the store dolls will sell for $10.00 each and replicas for $11.50. The intent is for the boutique to buy the figurines directly from Memories, Inc. at the wholesale prices. Assume that MI has excess capacity and can supply the figurines to MBI without impacting their current sales. The manager of MBI has now found an unrelated supplier that will provide dolls for $4.55 and replicas for $5.75. Required: A. Using estimated cost data for Year 3 (given in Part Eight), at what minimum price should MI agree to transfer dolls and replicas to MBI? B. What is the maximum price that MBI should be willing to pay MI for the figurines? C. If MBI purchases figurines from MI, what is the ideal transfer price? Why? D. Should MBI buy figurines from MI or from the outside supplier? (Don't forget that MBI is a wholly owned subsidiary.) What qualitative factors should be considered in making this decision? E. Answer questions A through D again assuming MI is operating at full capacity

Memories, Inc., needs a cash budget for Year 3 and has provided you with the following information. Sales are all on account (no cash) and are estimated to be collected over a three-month period, with 70 percent collected in the month of sale, 25 percent collected in the next month, and 4 percent collected in the third month. The remaining 1 percent is estimated to be uncollectible. December and November sales from Year 2 were $201,638 and $185,000, respectively. Because of the lag in collecting cash from sales on account, MI delays payment on some of its purchases of materials. MI estimated that 60 percent of each month's material purchases are paid in the month of purchase and 40 percent in the following month. The accounts payable balance for materials at the end of Year 2 was $20,000. MI requires a minimum balance of $40,000 in cash at the end of each month. The company will use its line of credit when needed to bring the balance up to that minimum level. For any money borrowed, the interest rate is 6 percent compounded annually. For simplicity, you can assume that cash is borrowed on the first day of the month and that loan repayments are made at the end of the month. The loan payable balance at the end of Year 2 was zero. The cash balance at the end of Year 2 was $40,000. Memories, Inc. plans to exercise the option on the leased production equipment in March (see Part Seven). The purchase price on the equipment will be $153,450 with payments of $3,260.36 per month. MI also plans on expanding the existing production space in May at a cost of $200,000. The company would like to finance the expansion out of current earnings and so will use the line of credit, if necessary, in May. The expansion will cause fixed manufacturing overhead to increase by $10,000 per month, starting in May. To remind you, the following costs still hold: Direct material costs $.74 per doll and $.62 per replica Direct labor costs $2.51 per doll and $2.78 per replica Fixed selling and admin costs $15,300 per month Fixed manufacturing overhead costs $2,851 per month Variable overhead costs $.55 per figurine Sales price $5.00 per doll and $5.25 per replica Required: A. Prepare a cash receipts budget for Year 3, assuming estimated sales of 385,000 dolls and 30,000 replicas. The following chart shows the monthly distribution of these sales: January 8.3% July 8.5% February 9.2% August 9.8% March 10.3% September 7.5% April 7.6% October 9.1% May 8.0% November 7.2% June 6.9% December 7.6%