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 roturn on Investment (ROP. Assumo the following Information ralative to the two divisions Alpha Divisiom: Capacity in units Number of units now beirg sald to 58,00 310,0 12,0e 202,0ee 78,000 202,09 66 44 outside custoners Sellirg price per unit to outside $8,000 318,000 $ 101 45 56424 $ Variable Fixed costs per unit (based on 42 29 $26$13% 24% 5 8,00 65,18,008 68,090 Deta Divisiom: Humber of units needed ennually Purchase price now being paid to 5 92 42 an outside supplier Before any purchase discountL Manegers are free to decide if they will parbicipate in any Internel transfers. All transfer prices are negoueted. Required: 1 Refer to case 1 shown above. Alpha Division can avoid $4 per unit in commissions on any sales to Bete Division 5. Whet is the lowest acceptable transter price from the perspective of the Alpha Dvision? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer pices (if any) between the two divisions? wil the managers probably agree to a tronsfer? 2. Refer to case 2 shown above. A study ind cates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta DivisIon o. Whot is the lowest acceptable tronsfer 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 yo expect any disagreement between the two divisional d Assume Alpha Division offers to sell 65.000 units to Beta Division tor $41 per unit and that Beta Division retuses this price Wnat ll be the loss in potential profits for the company as a whole? over what the exact transfer price should be? 3 Refer to case 3 shown above. Assume that Beta Dvision nowrceling an 4% price discount from the outside supplier Req 14 to C Rq 2A to 2D Raq 3A to 30 Raq 4 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs cn any salles to Beta Dirision. 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 transter prices (r any) between the two divisions? would you expect any disagreement between the two divisional managers aver what tha exact transfar price should he? d. Assume Alpha Division offers to sell 65,000 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? Req 1A to 1C Req 2A to 2D Req 3A to 3DReq 4 Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 60,000 units of a different product from the one Alpha Division is producing now. The new product would require $25 per unit in variable costs and would require that Apha Division cut back production ot its present product by 30,000 units annually. What is the lowest acceptable transfer price from Alpha Division's perspective? Show lass Showw less Identry the lowest and highast accoptable transfar prices Lowest acceptable transfer prioB
