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 own divisions return on investment (ROI). Assume the following information relative to the two divisions:

	Case
	1	2	3	4
Alpha Division:
Capacity in units	99,000	419,000	169,000	319,000
Number of units now being sold to outside customers	99,000	419,000	119,000	319,000
Selling price per unit to outside customers	$ 68	$ 128	$ 170	$ 88
Variable costs per unit	$ 56	$ 103	$ 135	$ 64
Fixed costs per unit (based on capacity)	$ 6	$ 15	$ 20	$ 9
Beta Division:
Number of units needed annually	24,000	49,000	39,000	123,800
Purchase price now being paid to an outside supplier	$ 65	$ 127	$ 170*

*Before any purchase discount.

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 49,000 units to Beta Division for $126 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

Help with last question please.

Identify the lowest and highest acceptable transfer prices