Alpha and Beta are divisions within the same company. The managers of both divis

Question

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions Case 2 4 Alpha Division: Capacity in units Number of units now being sold to 51,000 283,000 110,000 194,000 outside customers 51,000 283,000 85,000 194,000 Selling price per unit to outside 44 $ 24 $ 68 $ 45 96 $ customers Variable costs per unit Fixed costs per unit (based on 46 32 capacity) 22 $ 13 $ 27 $ 7 Beta Division: Number of units needed annually Purchase price now being paid to 10,100 75,000 21,000 60,000 an outside supplier 89 $ 42 $ 68* "Before any purchase discount. Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated Required 1. Refer to case 1 shown above. Alpha Division can avoid $4 per unit in commissions on any sales to Beta Division. a. What is the lowest acceptable transfer price from the perspective of the Alpha Division? b. What is the highest acceptable transfer price from the perspective of the Beta Division? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

Explanation / Answer

Identify the lowest and highest acceptable transfer prices:

Lowest acceptable transfer price = $96

Highest acceptable transfer price = $89

Identify the range of acceptable transfer prices (if any):

There is not a range of acceptable transfer price

Will managers agree to the trade

No

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