Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Veller Industries is a decentralized organization with six divisions. The company's Electrical Division produces a variety of electrical tems, including an X52 electrical fitting. The
Veller Industries is a decentralized organization with six divisions. The company's Electrical Division produces a variety of electrical tems, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fitting to its regular customers or $8.10 each; the fitting has a variable manufacturing cost of $4.58. -he company's Brake Division has asked the Electrical Division to supply it with a large quantity of X52 fittings for only $6.10 each. The Brake Division, which is operating at 50% of capacity, will put the fitting into a brake unit that it will produce and sell to a large ommercial airline manufacturer. The cost of the brake unit being built by the Brake Division follows: lthough the $6.10 price for the X52 fitting represents a substantial discount from the regular $8.10 price, the manager of the Brake Division believes the price concession is necessary if his division is to get the contract for the airplane brake units. He has heard through the grapevine" that the airplane manufacturer plans to reject his bid if it is more than $53 per brake unit. Thus, if the Brake Division is forced to pay the regular $8.10 price for the X52 fitting, it will either not get the contract or it will suffer a substantial loss at a ime when it is already operating at only 50% of capacity. The manager of the Brake Division argues that the price concession is mperative to the well-being of both his division and the company as a whole. Veller Industries uses return on investment (ROI) to measure divisional performance. Pequired: Assume that you are the manager of the Electrical Division. What is the lowest acceptable transfer price for the Electrical Division? Would you supply the X52 fitting to the Brake Division for $6.10 each as requested? . Assuming the airplane brakes can be sold for $53, what is the financial advantage (disadvantage) for the company as a whole (on a er unit basis) if the Electrical Division supplies fittings to the Brake Division? . In principle, within what range would the transfer price lie? For all requirements, enter your "Financial Disadvantage" amounts as a negative value and round your final answers to 2 decimal (laces.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started