Problem 11-25 (Algo) Basic Transfer Pricing [LO11-3] Alpha and Beta are divisions within the same company....
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/66488d4481a51_78766488d4400392.jpg)
Transcribed Image Text:
Problem 11-25 (Algo) Basic Transfer Pricing [LO11-3] Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their return on Investment (ROI). Assume the following Information for the two divisions: Case 2 4 Alpha Division: Capacity in units 100,000 420,000 170,000 320,000 Number of units now being sold to outside customers 100,000 420,000 120,000 320,000 Selling price per unit to outside customers $ 70 $ 130 $ 175 $ 90 Variable costs per unit $ 58 $ 105 $ 140 $ 66 Fixed costs per unit (based on capacity) $ 6 $ 15 $ 20 $ 9 Beta Division: Number of units needed annually 25,000 50,000 40,000 124,000 Purchase price now being paid to an outside supplier $ 67 $ 129 $ 175* *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 agree to a transfer? 2. Refer to case 2 shown above. A study Indicates 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 50,000 units to Beta Division for $128 per unit and Beta Division refuses this price. What will be the company's loss in potential profits? 3. Refer to case 3 shown above. Assume 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 agree to a transfer? d. Assume Beta Division offers to purchase 40,000 units from Alpha Division at $160 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 Beta Division wants Alpha Division to provide it with 124,000 units of a different product from the one Alpha Division is producing now. The new product would require $61 per unit in variable costs and would require Alpha Division to cut back production of its present product by 46,500 units annually. What is Alpha Division's lowest acceptable transfer price? Complete this question by entering your answers in the tabs below. Required 1A to Required 2A to Required 3A to 1C 2D 3D Required 4 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 agree to a transfer? 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? $ 67 Show less Problem 11-25 (Algo) Basic Transfer Pricing [LO11-3] Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their return on Investment (ROI). Assume the following Information for the two divisions: Case 2 4 Alpha Division: Capacity in units 100,000 420,000 170,000 320,000 Number of units now being sold to outside customers 100,000 420,000 120,000 320,000 Selling price per unit to outside customers $ 70 $ 130 $ 175 $ 90 Variable costs per unit $ 58 $ 105 $ 140 $ 66 Fixed costs per unit (based on capacity) $ 6 $ 15 $ 20 $ 9 Beta Division: Number of units needed annually 25,000 50,000 40,000 124,000 Purchase price now being paid to an outside supplier $ 67 $ 129 $ 175* *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 agree to a transfer? 2. Refer to case 2 shown above. A study Indicates 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 50,000 units to Beta Division for $128 per unit and Beta Division refuses this price. What will be the company's loss in potential profits? 3. Refer to case 3 shown above. Assume 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 agree to a transfer? d. Assume Beta Division offers to purchase 40,000 units from Alpha Division at $160 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 Beta Division wants Alpha Division to provide it with 124,000 units of a different product from the one Alpha Division is producing now. The new product would require $61 per unit in variable costs and would require Alpha Division to cut back production of its present product by 46,500 units annually. What is Alpha Division's lowest acceptable transfer price? Complete this question by entering your answers in the tabs below. Required 1A to Required 2A to Required 3A to 1C 2D 3D Required 4 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 agree to a transfer? 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? $ 67 Show less
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Give the numerical coefficient and the degree of each term. 2
-
Compare and contrast each of the following management accounting techniques and then, giving your reasons, select the one that in your opinion is most likely to be useful to a non-accounting manager:...
-
Define the term heartbeat in an HDFS and explain its purpose.
-
The first column in Table 8-5 lists transaction amounts that have been summed to obtain a batch total. Assume that all data in the first column are correct. Columns a through d contain batch totals...
-
You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($125 million last year) and a low marginal cost of producing the...
-
18 (1 point) If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability, a occurs. realized loss on the retirement of debt from the...
-
If a machine costs $40,000, and $5,000 a year for the lessor to maintain and insure, what equivalent annual cost would serve as the basis of a full-service lease payment for a eight-year operating...
-
Here are three lotteries played by three individuals that cost $100. Could you tell whether they are risk-neutral, risk-seeking(loving) or risk-averse? The percentages in () are the probabilities...
-
As set out in the company's organisational processes, you are also required to develop contingency plans to ensure that any risks to the success of goals of the operational plan are identified and...
-
Thomas estimates that the costs of insurance, license, and depreciation to operate his car total $470 per month and that the gas, oil, and maintenance costs are 48 cents per mile. Thomas also...
-
What important component of an aviation safety program is sometimes overlooked in a maintenance safety program ? What is the value of this component ? What is the significance of FOD and Wildlife...
-
You are looking at the area under the graph between two points. The area is zero. Which two points are you looking at? Enter the two letters in alphabetical order. For instance, if you think that the...
-
Welte Mutual Funds, Inc., is located in New York City. Welte just obtained $100,000 by converting industrial bonds to cash and is now looking for other investment opportunities for these funds. Based...
-
Write the binomial probability in words. Then, use a continuity correction to convert the binomial probability to a normal distribution probability. P(x 110)
-
Use the comparative statements from Application Problem 17-1 to complete this problem. Instructions: 1. Based on CyberOptic's comparative financial statements prepared in Application Problem 17-1 and...
-
Use the comparative balance sheet from Application Problem 17-1 to complete this problem. Instructions: 1. Based on CyberOptics comparative balance sheet prepared in Application Problem 17-1,...
-
Use the comparative statements from Application Problem 17-1 to complete this problem. Instructions: 1. Based on CyberOptics comparative financial statements prepared in Application Problem 17-1 and...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App