Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own divisions return on investment (ROI). Assume the following information relative to the two divisions:

Case

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Alpha Division:

Capacity in units88,000408,000158,000308,000

Number of units now being sold to outside customers88,000408,000108,000308,000

Selling price per unit to outside customers$ 46$ 106$ 115$ 66

Variable costs per unit$ 34$ 81$ 80$ 42

Fixed costs per unit (based on capacity)$ 6$ 15$ 20$ 9

Beta Division:

Number of units needed annually13,00038,00028,000121,600

Purchase price now being paid to an outside supplier$ 43$ 105$ 115*

*Before any purchase discount.

Required:

1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division.

a. What is Alpha Division's lowest acceptable transfer price?

b. What is Beta Division's highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.

a. What is Alpha Division's lowest acceptable transfer price?

b. What is Beta Division's highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?

d. Assume Alpha Division offers to sell 308,000 units to Beta Division for $104 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 8% price discount from the outside supplier.

a. What is Alpha Division's lowest acceptable transfer price?

b. What is Beta Division's highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

d. Assume Beta Division offers to purchase 28,000 units from Alpha Division at $100 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 121,600 units of a different product from the one Alpha Division is producing now. The new product would require $37 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45,600 units annually. What is Alpha Divisions lowest acceptable transfer price?

9 Alpha and Beta oro divisions within the same company The managers of both divisions are evaluated based on their own return on investment (ROI). Assume the following information relative to the two divisions ference Alpha Division Capacity in units 83,000 be of units now being sold to outside 105,000 158,000 300,000 customers 88,090 100,000 Selling price per unit to outside 500.000 customers $.46 $105 $115 $66 Variable costs per unit 561 50 $42 Fixed costs per unit (based on capacity) $6 $15 320 Seta Division umber of units needed annually 13,000 38,000 20,000 121,600 Purchase price now being paid to an outside supplier $.4) $105 5 115 Before any purchase discount Required: 1. Refer to case 1 shown above Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices of any between the two divisions? Will the managers probably agree to transfer 2. Refer to case 2 shown above A study indicates that Alpha Division con avoid $5 per unit in shipping costs on any sales to Be Division a What is Alphe Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? table transfer prices of any between the two divisions? Would you expect any disagreement between the HIN WO . eBook Print Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c What is the range of acceptable transfer prices of any between the two divisions? Will the managers probably agree to transfer 2 Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 308,000 units to Beta Division for $104 per unit and that Beto Division refuses this price. What will be the loss in potential profits for the company as a whole? 3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 8% price discount from the outside suppler a What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? d Assume Beto Division offers to purchase 28,000 units from Alpha Division at $100 per unit. If Alpha Division accepts this price. would you expect its ROI to increase, decrease, or remain unchanged? 4. Refer to cose 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 121600 units of a different product from the one Alpha Division is producing now The new product would require $37 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45.600 units annually. What is Alpha Division's lowest acceptable transfer price? ferences Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below. Reg 1A to IC Reg za to 2D Reg 3A to 3D Reg4 eBook 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division 3. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Show less Print oferences Identify the lowest and highest acceptable transfer prices Lowest acceptable transfer price Highest acceptable transfer pnce Range of acceptable transfer prices Will the managers agree to the trade? Req 2A to 2D > Complete this question by entering your answers in the tabs below. 10 point Reg 1 to 10 Reg 2 to 2D RG JA to 30 Req cBook 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 308,000 units to Beta Division for $104 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole? Print References Identify the lowest and highest acceptable transfer prices Lowest acceptable transfer price Highest acceptable transfer price Range of acceptable transfer prices Will the managers agree to the trade? Loss in potential profits for the company Reg A to 3D)