Wallen Products Inc has just purchased a small company that specializes in the manufacture of electronic tuners that are used as a component part of LCD TVs Wallen Products is a decentralized company, and it will treat the newly acquired company as an autonomous division with full profit responsibility. The new division, called the Tuner Division has the following revenue and costs associated with each tuner that it manufactures and sells $20 Selling price Expenses: Variable Fixed (based on a capacity of 188,880 tuners per year) $11 6 17 Operating income $3 Wallen Products also has an Assembly Division that assembles TVs. This division is currently purchasing 30,000 tuners per year from an overseas supplier at a cost of $20 per tuner, less a 10% purchase discount. The president of Wallen Products is anxious to have the Assembly Division begin purchasing its tuners from the newly acquired Tuner Division in order to keep the profits within the corporate family Required: For (1) and (2) below, assume that the Tuner Division can sell all of its output to outside TV manufacturers at the normal $20 price. 1-a. What is the minimum transfer price for Tuner Division? Minimum transfor price 1-b. What is the maximum transfer price that Assembly Division is ready to pay? Maximum transfer price 1-c. Are the managers of the Tuner and Assembly Divisions likely to voluntarily agree to a transfer price for 30,000 tuners each year? Yes No 2. If the Tuner Division meets the price that the Assembly Division is currently paying to its overseas supplier and sells 30.000 tuners to the Assembly Division each year, what will be the effect on the profits of the Tuner Division the Assembly Division, and the company as a whole? The Tuner Division will have an) The Assembly Division will have an) The company as a whole will have an) in profit by in profit by in profit by C For (3) through (6) below, assume that the Tuner Division is currently selling only 60,000 tuners each year to outside TV manufacturers at the stated $20 price 3-a. What is the minimum transfer price for Tuner Division? Minimum transfer price 3-b. What is the range of transfer price the manager's of both divisions should agree? The transfer price can be slowento! and a higher 3-c. It is assumed that managers are co-operative and understand their own business Are the managers of the Tuner and Assembly Divisions likely to voluntarily agree to a transfer price for 30,000 tuners each year? O Yes . 4-a. Suppose that the Assembly Division's overseas supplier drops its price (net of the purchase discount) to only $16 per funer. Shou the Tuner Division meet this price? Yes 4-6. How much potential profit will the Tuner Division lose if the $16 price is not mel? Pront of the company will by 5. Refer to (requirement 4) above. If the Tuner Division refuses to meet the $16 price, should the Assembly Division be required to purchase from the Tuner Division at a higher price for the good of the company as a whole? Yes O No 6. Refer to (requirement 4) above. Assume that due to inflexible management policies, the Assembly Division is required to purchase 30,000 tuners each year from the Tuner Division at $20 per tuner . What will be the effect on the profits of the company as a whole? a. The Tuner Division will have aln) B. The Assembly Division will have an) The company as a whole will have an) in profit by in profit by in profit by
