Sako Company\'s Audio Division produces a speaker that is used by manufacturers

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 Selling price per unit on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units $49 $17 $7 58,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 11,000 speakers per year. It has received a quote of $38 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: 1. Assume that the Audio Division is now selling only 47,000 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? Variable cost per unit Transfer price 2

Explanation / Answer

1) Calculation of lowest acceptable price from the point of view of Audio division :

Particulars Amount($) Amount($) Variable cost per unit 17 Fixed cost per unit 7 Additional price to HIfi division 14 21 Transfer price $38

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