The Ivy Company manufactures and sells television sets. Its assembly division (AD) buys television screens from...

 

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The Ivy Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $95 per screen. The SD can sell all its output to the outside market at a price of $125 per screen, after incurring a variable marketing and distribution cost of $6 per screen. If the AD purchases screens from outside suppliers at a price of $125 per screen, it will incur a variable purchasing cost of S6 per screen. Ivy's division managers can act autonomously to maximize their own diviaion's operating income. Read the requirements. Requirement 1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? Requirements Minimum transfer price %3D %3D What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? 2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD? 3. Now suppose that the SD can sell only 95% of its output capacity of 10,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 10,000 TV sets per month. a. What is the minimum transfør price at which the SD manager would be willing to sell screens to the AD? b. From the point of view of Ivy's management, how much of the SD output should be transferred to the AD? c. If lvy mandates the SD and AD managers to "split the difference" on the minimum and maximum transfer prices they would be willing to negotiate over, what would be the resulting transfer price? Does this price achleve the outcome desired in requirement 3b? Print Done The Ivy Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $95 per screen. The SD can sell all its output to the outside market at a price of $125 per screen, after incurring a variable marketing and distribution cost of $6 per screen. If the AD purchases screens from outside suppliers at a price of $125 per screen, it will incur a variable purchasing cost of S6 per screen. Ivy's division managers can act autonomously to maximize their own diviaion's operating income. Read the requirements. Requirement 1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? Requirements Minimum transfer price %3D %3D What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD? 2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD? 3. Now suppose that the SD can sell only 95% of its output capacity of 10,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 10,000 TV sets per month. a. What is the minimum transfør price at which the SD manager would be willing to sell screens to the AD? b. From the point of view of Ivy's management, how much of the SD output should be transferred to the AD? c. If lvy mandates the SD and AD managers to "split the difference" on the minimum and maximum transfer prices they would be willing to negotiate over, what would be the resulting transfer price? Does this price achleve the outcome desired in requirement 3b? Print Done

Answer rating: 100% (QA)

1 Minimum selling price Variable cost Loss of contribution on regular sales 95 125958 ... View the full answer