Question
The company Azinheira, Lda have two divisions, the Division A and the Division B. Division B monthly purchase 10.000 units to Division A, using as
The company Azinheira, Lda have two divisions, the Division A and the Division B. Division B monthly purchase 10.000 units to Division A, using as PTI total cost plus 5%. It is also known that the fixed costs incurred corresponding to 33% of total cost. However, the Division A modernized its production equipment and wants to increase the PTI to 18 euros/units. The manager of Division B argues that it cannot support the new value as this would lower their results to close to zero. Alternatively, the Division B can buy to an external supplier for 16,5 euros/ unit., benefiting in this case a 45-day payment (cost of capital opportunity is 4% / quarter). The Division A has no alternative use for this material. Request: Setting a price range for this transaction.
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