The Northeastern marketing staff has always been known for their creativity. Now they are considering changing...

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The Northeastern marketing staff has always been known for their creativity. Now they are considering changing the color of their specialty phone product to paisley. The Mexican supplier will not even bid on this, and no other supplier has been found. Northeastern believes that 27,500 of these specialty phone products can be sold at $200 each in the Ottawa market. The costs to produce this product, other than the cost of the Southwestern phone set are $183 each. Fortunately Southwestern already produces a paisley phone for its Calgary market. While this phone's cost structure is the same as Southwestern 's other phones it can only be sold for $200. Required: Determine whether a transfer is profitable for TAA. If so, suggest a transfer price that shares TAA's differential profit 75% for Northeastern and 25% for Southwestern. The Northeastern marketing staff has always been known for their creativity. Now they are considering changing the color of their specialty phone product to paisley. The Mexican supplier will not even bid on this, and no other supplier has been found. Northeastern believes that 27,500 of these specialty phone products can be sold at $200 each in the Ottawa market. The costs to produce this product, other than the cost of the Southwestern phone set are $183 each. Fortunately Southwestern already produces a paisley phone for its Calgary market. While this phone's cost structure is the same as Southwestern 's other phones it can only be sold for $200. Required: Determine whether a transfer is profitable for TAA. If so, suggest a transfer price that shares TAA's differential profit 75% for Northeastern and 25% for Southwestern.

Answer rating: 100% (QA)

To determine whether a transfer is profitable for TAA the division of Southwestern that produces the ... View the full answer