question 1

Phoenix Inc, a cellular communication company, has multiple business units, organized as divisions. Each division's management is compensated based on the division's operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division El produces similar cellular equipment that it sells to outside customersbut not to division A at this time. Division A's manager approaches division B's manager with a proposal to buy the equipment from division E. If it produces the cellular equipmerlt that division A desires, division 3 will incur variable manufacturing costs of $60 per unit. Relevant Information about Division B Sells 57,500 units of equipment to outside customers at $130 per unit lD'perating capacity is currently 80%; the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $640,000 Income per Unit for Division A {assuming parts purchased externally, notinternally from division B] Sales revenue $ 326 Manufacturing costs: Cellular equipment 80 Other materials 10 Fixed costs 40 Total manufacturing costs 136 Gross margin 196 Marketing costs: Variable 35 Fixed 15 Total marketing costs 56 Operating income per unit $ 14-6 ' Required: 1. Division A wants to buy 28,750 units from Division B at $?5 per unit. Should Division El accept or reject the proposal to sell the 28,750 units? [a]. Calculate the net operating profit or loss to Division B and to the firm as a whole if the 28,750 units are sold to Division A. {b.i Calculate the net benet to the firm as a whole if Division A will accept a partial shipment from Division B. 2. What is the range of transfer prices over which the divisional managers might negotiate a final transfer price? Complete this question by entering your answers in the tabs below. Req 1 Req 1A Req 1B Req 2 Division A wants to buy 28,750 units from Division B at $75 per unit. Calculate the net benefit to the firm as a whole if Division A will accept a partial shipment from Division B. Total capacity of division B 71,875 Maximum sales possible to outside consumers 57,500 Remaining Capacity 14,375 Savings per unit Total benefit from this alternative