The present selling price for Product Z is $28.00. Listed below is a series of possible price reductions by competition and the probable impact of these reductions on the volume of sales if Division C does not also reduce its price.

• Possible competitive price: $27.00; $26.00; $25.00; $23.00; $22.00.

• Sales volume if price of Product Z is maintained at $28.00: 9,000; 7,000; 5,000; 2,000; 0.

• Sales volume if price of Product Z is reduced to competitive levels: 10,000; 10,000; 10,000; 10,000; 10,000.

a. With transfer price calculated in Problem 1, is Division C better advised to maintain its price at $28.00 or to follow competition in each of the instances above?

b. With the transfer prices calculated in Problem 2, is Division C better advised to maintain its present price at $28.00 or to follow competition in each of the instances above?

c. Which decisions are to the best economic interests of the company, other things being equal?

d. Using the transfer prices calculated in Problem 1, is the manager of Division C making a decision contrary to the overall interests of the company? If so, what is the opportunity loss to the company in each of the competitive pricing actions described above?

Answer rating: 100% (QA)

a Standard cost 2360 Present selling price 2800 competitive price 2700 2600 2500 2300 2200 Profit If ... View the full answer