Sako Company’s Audio Division produces a speaker that is used by manufacturers o
ID: 2532591 • Letter: S
Question
Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:
Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 12,000 speakers per year. It has received a quote of $37 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits.
Required:
1. Assume the Audio Division is now selling only 46,000 speakers per year to outside customers.
a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 12,000 speakers from the Audio Division to the Hi-Fi Division?
d. From the standpoint of the entire company, should the transfer take place?
2. Assume the Audio Division is selling all of the speakers it can produce to outside customers.
a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 12,000 speakers from the Audio Division to the Hi-Fi Division?
d. From the standpoint of the entire company, should the transfer take place?
Selling price per unit on the intermediate market $ 44 Variable costs per unit $ 17 Fixed costs per unit (based on capacity) $ 7 Capacity in units 58,000Explanation / Answer
1.
a) The lowest acceptable transfer price from the stand point of Audio division to HI fi division is $ 17 the variable cost of audio division since the audio division has a spare capacity of 12,000 units
b) The highest acceptable transfer price from the stand point of Hi fi division is $ 37 since this is the market price that is offering to Hi fi division
c) The acceptable transfer price range is $ 18 -36 which is free to negociate
d) Yes , Transfer price should take place in stand point company since audio division has a spare capacity of 12,000
2.
a) From the stand point of audio division the lowest acceptable transfer price is $ 44
b) The highest acceptable transfer price from the stand point of hi fi division is $ 37
c) There was no acceptable range
d)No, The transfer price should not be accepted from the stand poin of the company
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