Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50, with the following costs based on its capacity of 250,000 units:

Direct Materials	$15
Direct Labor	$12.50
Variable OH	$2.50
Fixed OH	$7.50

At present Beta does not sell any units to Alpha. Beta is selling 150,000 units externally, and Alpha is purchasing 75,000 units from an outside supplier for $45 per unit.

A.) What happens to Beta's income if it meets the outside supplier’s price, and transfers the 75,000 units to Alpha?

B.) Assume that a transfer price of $50 is used between Alpha and Beta. How does this affect the profits of Alpha, Beta, and Aberzombie, Inc (compared to when Alpha purchased the units from the outside supplier)?

Answer rating: 100% (QA)

Solution A If Beta meets the outside suppliers price and transfers the 75000 units to Alpha Betas in... View the full answer