Problem 11A-6 Basic Transfer Pricing [LO11-5] 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 Alpha Division: Capacity in units Number of units now being sold to 57,000 317,000 106,000 201,000 outside customers Selling price per unit to outside 57,000 317,000 83,000 201,000 40 $ 20 $ 98 $ 67 $ 42 $ $ customers Variable costs per unit Fixed costs per unit (based on 29 $ 61 $ $ 23 $ 10,500 $ 88 $ capacity) 25 $ Beta Division: 66,000 18,000 62,000 Number of units needed annually Purchase price now being paid to an outside supplier 39 $ 67* "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 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 $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 66,000 units to Beta Division for $38 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole