The Battery Division of Photolife Company produces R4. a rechargeable battery th
ID: 2423793 • Letter: T
Question
The Battery Division of Photolife Company produces R4. a rechargeable battery that can be sold extremely or internally to Photolife's Photography Division. Sales and cost data per unit of R4 are as follows: Unit selling price 29 50 Unit variable cost 14.0 Unit product fixed cost 12.0 Practical capacity 50.000 units (R4) During the coming year, the Battery Division expects to sell 35.000 units of R4 The Photography Division currently plans to buy 15,000 batteries on the outside market for 29.50 each Andrea Han. manager of the Battery Division has approached Karen Poh. manager of the Photography Division, and offered to sell the 15.000 units of R4 for 29.40 each Andrea explained to Karen that she can avoid selling costs of 0 20 per unit of R4 and that aha would split the savings by offering a 0.10 discount on the usual price REQUIRED: What is the minimum transfer price that the Battery Division would be willing to accept? What is the minimum transfer price that the Photography Division would be willing to pay? Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole 4 the internal transfer lakes place? Suppose Karen knows that the Battery Division has idle capacity Do you think that she would agree to the transfer price of 29.40? Suppose Karen counters with an offer to pay 28.50. If you were Andrea, would you be interested in this price? Explain with supporting computations Suppose that the company's policy is that all internal transfers take place at full cost. What would the transfer price be? Would the transfer take place?Explanation / Answer
The minimum transfer price for Battery divison is variable cost for the product = 14
The maximum transfer price =29.5 - 0.20 + 0.10 = 29.4
The maximum transfer price for Photo Division 29.4,because at 29.5 ,the division can buy from outside market.
b) No , Karen should not agree, because the company is bound to incurr the fixed cost, which is 12* 50000 = 600000
If they offer , the battery division should take the offer, since they have idle capacity, it will be profitable for them.
c)Then, the transfer price is 26 at full cost. The transfer can still take place, since battery is covering its sale target of 35000, still left with idle capacity of 15000
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