The Television Company manufactures and sell television sets. Its assembly division (ASD) buys television screens from the screen division (SOV) and assembles the TV sets. The SOV, which is not operating at its full capacity of 20.000 screens. Incurs an incremental manufacturing cost of 375 per screen. The SD can sell 15.000 screens to the outside market at a price of 5105 per screen, after incurring a vanable marketing and distribution cost of 57 per screen if the ASD purchases screens from outside suppliers at a price of 5105 per screen. It will incura Variable purchasing cost of per screen. Television Company's division managers can act autonomously to maumice their own division's operating income 1. What is the minimum transfer price at which the Sov manager would be willing to se 5000 screens to the ASD? 2. What is the maximum transfer price at which the ASD manager would be willing to purchase the 5000 screens from the SOV? 2. Now suppose that the so can sell 100% of its output capacity of 20.000 screens per month on the open market Capacity cannot be increased in the short run. The ASD can semble and more than 20.000 TV sets per month What is the minimum transfer price at which the SO manager would be willing to sell the 5000 screens to the ASD? 31 What is the maximum transfer price at which the ASD manager would be willing to purchase screens from the SOV IN Explain what options Television Corporation would consider to ensure that the managers of both division make a congruent decisions 123 The Television Company manufactures and sell television sets. Its assembly division (ASD) buys television screens from the screen division (SOV) and assembles the TV sets. The SOV, which is not operating at its full capacity of 20.000 screens. Incurs an incremental manufacturing cost of 375 per screen. The SD can sell 15.000 screens to the outside market at a price of 5105 per screen, after incurring a vanable marketing and distribution cost of 57 per screen if the ASD purchases screens from outside suppliers at a price of 5105 per screen. It will incura Variable purchasing cost of per screen. Television Company's division managers can act autonomously to maumice their own division's operating income 1. What is the minimum transfer price at which the Sov manager would be willing to se 5000 screens to the ASD? 2. What is the maximum transfer price at which the ASD manager would be willing to purchase the 5000 screens from the SOV? 2. Now suppose that the so can sell 100% of its output capacity of 20.000 screens per month on the open market Capacity cannot be increased in the short run. The ASD can semble and more than 20.000 TV sets per month What is the minimum transfer price at which the SO manager would be willing to sell the 5000 screens to the ASD? 31 What is the maximum transfer price at which the ASD manager would be willing to purchase screens from the SOV IN Explain what options Television Corporation would consider to ensure that the managers of both division make a congruent decisions 123
