(Transfer prices) In each of the following cases, the Electronic Division can sell all its production of audio speakers to outside customers or it can sell some of them to the Hi Fi Division and the remainder to outside customers. Electronic Division’s capacity for production of these speakers is 200,000 units annually. The data related to each independent case are:

a. For each case, determine the upper and lower limits for a transfer price for speakers.

b. For each case, determine a transfer price for the Electronic Division that will provide a $10 contribution margin per unit.

c. Using the information developed for part

b, determine a dual transfer price for Case #1 assuming that Hi Fi is to be able to acquire the speakers from Electronic at $10 below Hi Fi’s purchase price from outside suppliers.

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ELECTRONIC DIVISION CASE #1 CASE #2 Variable overhead Production costs per unit: Direct materials Direct labor Fixed overhead (based on capacity) $30 $20 10 8 3 2 1 1 Other variable selling and delivery costs per unit* 6 Selling price to outside customers 75 +8 4 60 *In either case, $1 of the selling expenses will not be incurred on intracompany transfers. HI FI DIVISION Number of speakers needed annually Current unit price being paid to outside supplier 40,000 $65 40,000 $52