TC Electronics is a manufacturer with two departments: computer chips and cell phones. The computer chip that is produced in the Chips Department can be sold to customers at $$6\mathrm{.}25$ per chip.

The costs associated with the computer chips are as follows:

View the computer chip costs.

The Cell Phone Department has been purchasing the chips that it needs for $$4\mathrm{.}00$ per chip from Chip Mart, but the manager was thinking that if the Chips Department could supply the chips for less than what Chip Mart is asking, then it would arrange a transfer between departments instead of giving the business to an external company.

If the Cell Phone Department needs $240,000$ computer chips and current production in the Chips Department is $480,000$ chips, should a transfer take place? If so$,$ at what price? $($Note: For internal transfers, the selling and administrative costs are reduced to $$0\mathrm{.}75$ per unit.$)$ What other qualitative factors might need to be considered?

First, let's determine if a transfer should take place by determining the minimum transfer price. $($Round your answer to the nearest cent.$)$

What is the minimum transfer price?

Should the internal transfer take place?

Now, find the range of the price for the internal transfer.

What is the lowest price for the internal transfer?

What is the highest price for the internal transfer?

What other qualitative factors might need to be considered?

A$.$ The relationship that the Cell Phone Division has with its external supplier of chips, as it could be an issue if they are unable to return to the external supplier for additional orders in the future.

B$.$ The relationship that the Cell Phone Division has with its customers, as the customers may be affected by the change.

C$.$ The relationship that the Cell Phone Division has with its external supplier of chips, as the Chips Division may be less likely to cooperate if it sees a poor relationship with the previous surnliar

D$.$ The relationship that the Cell Phone Division has with the Chips Division, as the change may put extra strain on that Division.

The Chips Division may also require some downtime for equipment maintenance or other things $($perhaps summer vacations for employees, for example$)$ and a reduced workload for a short period may be $$

Computer chip costs

$\backslash$table$[[$Variable manufacturing costs $.........$ $$,2\mathrm{.}50],[$Variable selling and administrative costs.$$,1\mathrm{.}30],[$Capacity$,725,000$ units$],[$Current production $................,725,000$ units$]]$