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Problem 11A-6 Basic Transfer Pricing [L011-5] Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions Case 4 Alpha Division Capacity in units Number of units now being sold to 54,000 318,000 182,000 208,800 77,000 208,0ee 46 outside customers Selling price per unit to outside 54,000 318, 000 96 $ customers Variable costs per unit Fixed costs per unit (based on 44 $ 22 $ 64 $ 38 $ $60 $ $21 $ 9,600 $88 $ 30 capacity) 13 $ 21 $ Beta Division: Number of units needed annually Purchase price now being paid to 66,000 22,000 64,e0e an outside supplier 42 $ 64* "Before any purchase discount. Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiatec Required: 1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? C. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $6 per unit in shipping costs on any sales to Beta Division a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? C. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 66,000 units to Beta Division for $41 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole? 3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 6% price discount from the outside supplier. a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? ill the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 22,000 units from Alpha Division at $55.16 per unit. If Alpha Division accepts this price would you expect its ROl to increase, decrease, or remain unchanged? 4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 64,000 units of a different product from the one Alpha Division is producing now. The new product would require $26 per unit in variable costs and would require that Alpha Division cut back production of its present product by 32,000 units annually. What is the lowest acceptable transfer price from Alpha Division's perspective? Req 1A to 1C Req 2A to 2D Req 3A to 3D Req 4 1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? will the managers probably agree to a transfer? Show lessA Identify the lowest and highest acceptable transfer prices Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any): OThere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below: S Transfer priceS Will the managers agree to the trade? OYes ONo Req 1A to 1C Req 2A to 2D> 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $6 per unit in shipping costs on any sales to Beta Division. a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 66,000 units to Beta Division for $41 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole? Show less Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any): OThere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below: s Transfer price s Will the managers agree to the trade? Yes ONo Loss in potential profits for the company 3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 69% price discount from the outside supplier. a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 22,000 units from Alpha Division at $55.16 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? (Round your final answers to 2 decimal places.) Show lessA Identify the lowest and highest acceptable transfer prices: Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any) OThere is not a range of acceptable transfer prices. OThere is a range of acceptable transfer prices as shown below Transfer price Will the managers agree to the trade? Yes ONo Division A's ROI should OIncrease ODecrease Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 64,000 units of a different product from the one Alpha Division is producing now. The new product would require $26 per unit in variable costs and would require that Alpha Division cut back production of its present product by 32,000 units annually. What is the lowest acceptable transfer price from Alpha Division's perspective? Show less A Lowest acceptable transfer price