The Violet 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 ?$60 per screen. The SD can sell all its output to the outside market at a price of ?$90per? screen, after incurring a variable marketing and distribution cost of ?$99 per screen. If the AD purchases screens from outside suppliers at a price of ?$90 per? screen, it will incur a variable purchasing cost of ?$88 per screen. Violet?'s division managers can act autonomously to maximize their own? division's operating income.

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

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

Requirement 3. Now suppose that the SD can sell only 90?% of its output capacity of 5,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 5,000 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?

b. From the point of view of Violet?'s ?management, how much of the SD output should be transferred to the? AD?

c. If Violet mandates the SD and AD managers to? "split the? difference" on the minimum and maximum transfer prices they would be willing to negotiate? over, what would be the resulting transfer? price? Does this price achieve the outcome desired in requirement? 3b?

FOR REFERENCE: The below problem is a similar problem with the solutions given. Please model your responses to the above actual problem to what would be entered in each of the blue fields shown in the below example.