The present selling price for Product Z is $28.00. Listed below is a series of possible price
Question:
The present selling price for Product Z is $28.00. Listed below is a series of possible price reductions by competition and the probable impact of these reductions on the volume of sales if Division C does not also reduce its price.
• Possible competitive price: $27.00; $26.00; $25.00; $23.00; $22.00.
• Sales volume if price of Product Z is maintained at $28.00: 9,000; 7,000; 5,000; 2,000; 0.
• Sales volume if price of Product Z is reduced to competitive levels: 10,000; 10,000; 10,000; 10,000; 10,000.
a. With transfer price calculated in Problem 1, is Division C better advised to maintain its price at $28.00 or to follow competition in each of the instances above?
b. With the transfer prices calculated in Problem 2, is Division C better advised to maintain its present price at $28.00 or to follow competition in each of the instances above?
c. Which decisions are to the best economic interests of the company, other things being equal?
d. Using the transfer prices calculated in Problem 1, is the manager of Division C making a decision contrary to the overall interests of the company? If so, what is the opportunity loss to the company in each of the competitive pricing actions described above?
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins