2. (6 points) The Laker Co. and the Warrior Co. are both subsidiary companies ow
ID: 2588914 • Letter: 2
Question
2. (6 points) The Laker Co. and the Warrior Co. are both subsidiary companies owned by the NBA Jam Co. The Laker Co. makes a product called the "Brick" with a variable cost per unit of $9 and total fixed expenses of $400,000. The Laker Co. can sell the product to other companies for $18. The Laker Co. has a capacity of 10,000 units, but is currently selling 9,000 units to outside companies (thus, there is idle capacity of 1,000 units). The Warrior Co. uses the "Brick" in one of its products called the "Championship". The Warrior Co. can buy the "Brick" from an outside company for $16 per unit. If the Warrior Co. needs 2,000 units of the "Brick", what would be the range of acceptable transfer prices between the Laker Co. and the Warrior Co.?Explanation / Answer
laker can supply the first 1,000 units at $9 per unit but since it has to sacrifice market demand to supply next 1000 units it will charge $18 per unit for these units.
Total price required by Laker = (1000*9)+(1000*18) = $27,000
Average cost per unit required by laker = 27000/2000 = $13.5
Purchase price of warrior from market of above units = $16.
Thus, the range would be = $13.5 to $16.
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