Hill, Inc., has two divisions: Appliance Division and Parts Division. The Parts Division makes a component that can be used in a product assembled by Appliance Division. Currently, the market price of the component is $6. Data on the component and on the final product are as follows:

	Component (Parts Division)	Final Product (Appliance Division)
Price (set by outside market)	$6.00	$50.00
Unit variable cost of component	$2.90
Unit variable cost without component		$20.00
Unit fixed overhead	$1.20	$4.75
Total fixed selling & admin exp	30,000	147,000

The Parts Division can produce 70,000 units of the component and expects to produce and sell 70,000 units next year. The Appliance Division expects to produce and sell 15,000 units of final product next year. Hill, Inc., allows division to negotiate their own transfer prices.

1.	Which division sets the ceiling of the bargaining range or maximum transfer price?
2.	Which division sets the floor of the bargaining range or minimum transfer price?
3.	What is the maximum transfer price? $ per unit
4.	What is the minimum transfer price? $ per unit
5.	Which of the following statements is true regarding the bargaining range?

6.	Now suppose that the Parts Division can avoid certain variable costs of packaging if the component is transferred internally. The avoidable packaging cost is $0.60 per unit.

a.	What is the maximum transfer price? $ per unit
b.	What is the minimum transfer price? (Round your answer to the nearest cent.) $ per unit
c.	Suppose the Parts Division offers the component to the Appliance Division for $5.90.
	What is the benefit to the Parts Division of that transfer price?
	To the Appliance Division?
	To Hill, Inc. as a whole?
d.	Suppose the Appliance Division offers to buy the component from the Parts Division for $5.60.
	What is the benefit to the Parts Division of that transfer price?
	To the Appliance Division?
	To Hill, Inc. as a whole?

Answer rating: 100% (QA)

1 The ceiling of the bargaining range or maximum transfer price can be set by the Part division beca... View the full answer