Refer to case 3 shown above. Assume that Beta Division is now receiving an 3% 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 probably agree to a transfer?

d. Assume Beta Division offers to purchase 21,000 units from Alpha Division at $55.14 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

 

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 $24 per unit in variable costs and would require that Alpha Division cut back production of its present product by 30,000 units annually. What is Alpha Division's lowest acceptable transfer price?

 

 

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 1 2 3 4 Alpha Division: Capacity in units 54,000 314,000 109,000 207,000 Number of units now being sold to outside customers 54,000 314,000 83,000 207,000 Selling price per unit to outside customers $ 101 $ 38 $ Variable costs per unit $ 64 $ 16 $ 62 $ 36 $ 44 29 Fixed costs per unit (based on capacity) $ 26 $ 6 $ 18 $ 6 Beta Division: Number of units needed annually 9,500 67,000 21,000 60,000 Purchase price now being paid to an outside supplier $ 92 $ 35 $ 62* *Before any purchase discount.