TEB, Inc., which manufactures video games, consists of two divisions, each opera
ID: 2529869 • Letter: T
Question
TEB, Inc., which manufactures video games, consists of two divisions, each operating as a profit center. Division A makes a component that is needed by Division B; however, if the price from Division A is too high, Division B has indicated it would purchase the component from an outside supplier. Additional information related to the divisions is: Division B’s annual needs for component 10,000 units Division A’s capacity 40,000 units Division A’s current sales at $170 per unit 30,000 units Division As total cost per unit ($140 variable and $10 fixed) $150 Division A’s annual fixed cost $1,500,000 Price per unit to buy from outside supplier $160 Assume Division A has an offer from a foreign buyer to purchase 10,000 units at $150 per unit. Assume the company management (Vice-President above the two divisions) wants Division A to supply/transfer 10,000 units to Division B.
The most logical minimum acceptable transfer price is __________?
The most logical maximum acceptable transfer price is __________?
Explanation / Answer
The most logical minimum acceptable transfer price is __________?
Logical minimum acceptable transfer price will be $150 per unit as Division A's Cost per unit is $150 and also it can sale the ideal capacity at $150 per unit.
The most logical maximum acceptable transfer price is __________?
Logical maximum acceptable transfer price will be $160 per unit as Division B's Cost per unit will be $160 if it buys from outside vendor.
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