The

SlateSlate

Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of

$7575

per screen. The SD can sell all its output to the outside market at a price of

$100100

per screen, after incurring a variable marketing and distribution cost of

$88

per screen. If the AD purchases screens from outside suppliers at a price of

$100100

per screen, it will incur a variable purchasing cost of

$88

per screen.

SlateSlate's

division managers can act autonomously to maximize their own division's operating income.

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requirements

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Question content area bottom

Part 1

Requirement 1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?

Incremental cost per screen	+	Opportunity cost per screen	=	Minimum transfer price
$75	+	$17	=	$92

Part 2

Requirement 2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?

Outside market price per screen	+	Purchasing cost per screen	=	Maximum transfer price
$100	+	$8	=	$108

Part 3

Requirement 3. Now suppose that the SD can sell only

9595%

of its output capacity of

10 comma 00010,000

screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than

10 comma 00010,000

TV sets per month.

a. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? (Select the group(s) of units and enter the minimum transfer price for each group.)

Units	Minimum transfer price
500 units	92
9,500 units	75