Task 4 (10 marks)

Crede Inc. has two divisions: Division A makes and sells student desks and Division B

manufactures and sells reading lamps.

Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at

a cost of $10 from an outside vendor. Division A needs 10,000 lamps for the coming year.

Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are

estimated at 40,000 lamps for the next year. Reading lamps are sold at $12 each. Variable costs

are $7 per lamp and include $1 of variable sales costs that are not incurred if lamps are sold

internally to Division A. The total amount of fi xed costs for Division B is $80,000.

Required: Consider the following independent situations:

1. What should be the minimum transfer price accepted by Division B for the 10,000 lamps and

the maximum transfer price paid by Division A? Justify your answer.

2. Suppose Division B could use the excess capacity to produce and sell externally 15,000

units of a new product at a price of $7 per unit. The variable cost for this new product is $5

per unit. What should be the minimum transfer price accepted by Division B for the 10,000

lamps and the maximum transfer price paid by Division A? Justify your answer.

3. If Division A needs 15,000 lamps instead of 10,000 during the next year, what should be the

minimum transfer price accepted by Division B and the maximum transfer price paid by

Division A? Justify your answer.

GB519/MADM/3T2015/MIR/SK Page 4 of 4

Part B: Critical reflection (approximately 1,000 words)

You had to practically apply the decision making models and tools you have learned about

throughout the subject. Reflect on your experience in completing the various assessments in this

course. What major learning on measurement and decision making can you apply in practice as a

manager in your organisation?

The list below provides some questions you may wish to consider in your critical reflection. These

are suggestions only. You may address issues that are not on this list.

1. Has what you have learned in this subject created an increased awareness of the

importance of decision making as a management activity? Why or why not?

2. Which model or tool most influenced you as you worked your way through the subject?

Why?

3. How critical do you believe the quality of decision making is to an organisation? Why?

4. Which of the models and tools would you use as a manager? Why?