Question 1:

Fernando's Sandwich shop.

Problem 3 Jacks manufactures sports motors and vehicles in two divisions. Division A makes vehicles and B makes motors. The company's divisions operate as decentralized profit centers. In the past Division A has bought motors from Division B. Division A has decided to go outside the company to buy motors, since it was informed that Division B was increasing its selling price of the motors to $220. Information for Division A and Division B is as follows: Outside supplier price for motors for A Division A's annual purchases Division B's variable costs per unit Division B's fixed costs Division B's maximum capacity Division B's capacity utilization $180 10,000 units $140 $1,200,000 20,000 units 100% I) Because B is operating at full capacity and thus can sell all its motors outside, what transfer price should B quote to A? Will Jacks benefit financially if division A purchases outside the company? 2) Assume division B cannot sell all its motors to outside buyers, in fact it is only operating at 50% of capacity. What transfer price should be quoted to A? 3) Assume division B can save $200,000 in fixed transportation and compliance costs if it does manufacture the motors for division A. Assuming B is operating at full capacity what transfer price B should quote? 4) Assume the costs and capacity utilization in situation 1.3. If B quotes $205 to A, what action will A take and what will Jack's loss in profits be?