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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 51,00 380,000 106,000 190,000 51,000 300,000 81,000 190,000 Alpha Division Capacity in units Number of units now being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Beta Division Number of units needed annually Purchase price now being paid to an outside supplier $ $ 1025 65$ 45$ 265 66 $ 425 44 28 $ 265 13 S 25 5 5 10,100 72,000 19,000 62.000 $ 965 445 "Before any purchase discount: Managers are free to decide if they will participate in any Internal transfers. All transfer prices are negotiated. Required: 1. Refer to case 1 shown above. Alpha Division can avold $4 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 $4 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 Alarm the tranen? HaeIA 1 10 Req 1A to 1C Req 2A to 2D | Reg 3A to 3D Reg 4 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $4 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 72,000 units to Beta Division for $43 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) There is not a range of acceptable transfer prices There is a range of acceptable transfer prices as shown below Transfer price 5 Will the managers agree to the trade? 10Yes ONO Loss in potential profits for the company 3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% 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 19,000 units from Alpha Division at $57.70 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 less Identify the lowest and highest acceptable transfer pricos Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any) There is not a range of acceptable transfer prices There is a range of acceptable transfer prices as shown below Transfer price 5 Will the managers agree to the trade? Ores ONO Division A's ROI should Incronso Decrease Req 1A to 10 Reg 2A to 2D Reg 3A to 3D Reg 4 Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $22 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is the lowest acceptable transfer price from Alpha Division's perspective? Show less Lowest acceptablo transfer price ( Req 3A to 3D Ren Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on thelr own division's return on investment (ROI). Assume the following information relative to the two divisions. COM 2 51,000 300,000 106,000 190,000 57,000 300,000 81,000 190,000 Alpha Division Capacity in units Humber of units now being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Beta Division Number of units needed annually Purchase price now being paid to an outside supplier 5 $ 1025 655 455 265 565 425 44 28 $ 265 135 255 5 10,100 72.000 19,000 62,000 $ 96 $ 44 $ 66
