Clinton Corporation has two decentralized divisions, Alpha and Beta. Alpha always has purchased certain units from Beta

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Clinton Corporation has two decentralized divisions, Alpha and Beta. Alpha always has purchased certain units from Beta at $90 per unit. Beta plans to raise the price to $120 per unit, the price it receives from outside customers. As a result, Alpha is considering buying these units from outside suppliers for $90 per unit. Beta's costs follow:
Clinton Corporation has two decentralized divisions, Alpha and Beta. Alpha

Required
a. If Alpha buys from an outside supplier, the facilities that Beta uses to manufacture these units will remain idle. What will be the result if Clinton enforces a transfer price of $120 per unit between Alpha and Beta?
b. Suppose Clinton enforces a transfer price of $90 and insists that Beta sell to Alpha before selling to outside customers. Beta currently operates at capacity and can easily sell the units it sells to Alpha on the outside market. What cost will Clinton incur as a result of this policy?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Fundamentals of Cost Accounting

ISBN: 978-1259565403

5th edition

Authors: William Lanen, Shannon Anderson, Michael Maher

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