Question: Innovative Systems (IS) is a division of Global Electronics, Inc. IS produces videogame systems. These systems are sold to retailers. IS recently approached the manager

Innovative Systems (IS) is a division of Global Electronics, Inc. IS produces videogame systems. These systems are sold to retailers. IS recently approached the manager of the Laptop Computer Division regarding a request to buy a special circuit board for a new advanced video game system. IS has requested that the laptop computer division produce 200,000 units of this special circuit board. The following facts are available regarding the Laptop (LT) Division.
Selling price of standard circuit board ...... $54
Variable cost of standard circuit board ...... 30
Additional variable cost of special circuit board . 20

Instructions
For each of the following independent situations, calculate the minimum transfer price, and discuss whether the internal transfer should take place or whether IS should purchase the circuit board externally.
(a) IS has offered to pay the LT Division $62 per circuit board. The LT Division has no available capacity. The LT Division would have to forgo sales of 200,000 circuit boards to existing customers in order to meet the request of IS.
(b) IS has offered to pay the LT Division $90 per circuit board. The LT Division has no available capacity. The LT Division would have to forgo sales of 250,000 circuit boards to existing customers in order to meet the request of IS.
(c) IS has offered to pay the LT Division $62 per circuit board. The LT Division has available capacity.

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