Problem 11-25 (Algo) Basic Transfer Pricing [LO11-3] Alpha and Beta are divisions within the same compary. The managers of both divislons are evaluated based on their refum on investment (RO). Assume the following information for the two divisions: +Defore any purchase disceuns. Regutied 1. Refer to case 1 thowr abowe. Apha Division can avoid 52 per unt in commissions on any soves to Beta Division. a. What is Alpha Division's lowest occeptable transfer peice? b. What is Beta ONision's Nighest acceptable transfer peice? c. Whet is the range of acceptable transfer atices of amy betwees the two divisons? Wit the marvoevs agree to a transfert 2. Pefer to case 2 shown above. A study ind cates Alpha Division can avod $5 per urit in thpping cosis an ary sales to Beso Division a. What is Alpha Dision's iawest acceptable transfer price? b. What is Beta Disions highest acceplable teansfer ptice? c. What is the range of acceptable trensfer prices (I any) between the two divisons? Would you expect any disagreensent betweed the twe divisional managers over what the exact transfer price should be? be the comoarys ioss in potencil profis? 3. Aefer to case 3 shown above. Assume Beto Owivon is now leceiving an as price discount from the outside suppted. a. What is Alpha Orvioriors iowest acceptable transfet price? b. What is Bela Divicons highest atceptabie trasster price? would you eapect is ROG to inctease, decrebse, of remain unchanged? the ore Alpha Drvision is producing now. The new product would requive 561 per unit in variabie costs and wocld require Apha pricel? Complete this question by entering your answers in the tabs below. Required IA to ic 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer? Complete this question by entering your answers in the tabs below. Required IA to 1C 2. Refer to case 2 shown above. A study indicates. Alpha Division can avold $5 per unit in shipping costs on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? 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 50,000 units to Beta Division for $128 per unit and Beta Division refuses this price. What will be the company's loss in potential profits? Complete this question by entering your answers in the tabs below. 3. Refer to case 3 shown above. Assume Beta Division is now receiving an 8% price discount from the outside supplier. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer? d. Assume Beta Division offers to purchase 40,000 units from Alpha Division at $160 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? Complete this question by entering your answers in the tabs below. Required 1A to Required 2A to Required 3A to 1C2O30 4. Refer to case 4 shown above, Assume Beta Division wants Alpha Division to provide it with 124,000 units of a different product from the one Alpha Division is producing now. The new product would require $61 per unit in variable costs and would require Alpha Division to cut back production of its present product by 46,500 units annually. What is Alpha Division's lowest acceptable transfer price
