Question
Sako Companys Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: Selling
Sako Companys Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow: |
Selling price per unit on the intermediate market | $44 |
Variable costs per unit | $19 |
Fixed costs per unit (based on capacity) | $6 |
Capacity in units | 62,000 |
Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 12,000 speakers per year. It has received a quote of $33 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. |
Required: | |
1. | Assume that the Audio Division is now selling only 50,000 speakers per year to outside customers. |
a. | From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? |
b. | From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? |
c. | If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 12,000 speakers from the Audio Division to the Hi-Fi Division? | ||||
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d. | From the standpoint of the entire company, should the transfer take place? | ||||
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2. | Assume that the Audio Division is selling all of the speakers it can produce to outside customers. |
a. | From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? |
b. | From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? |
c. | If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 12,000 speakers from the Audio Division to the Hi-Fi Division? | ||||
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d. | From the standpoint of the entire company, should the transfer take place? | ||||
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