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 55,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 9,000 speakers per year It has received a quote of $33 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 of any between the two divisions of left free to negotiate without interference would you expect the division managers to voluntarily agree to the transfer of 9,000 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? What is the range of acceptable transfer prices of 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 9,000 speakers from the Audio Division to the Hi-Fi Division? d From the standpoint of the entire company should the transfer take place? Complete this question by entering your answers in the tabs below Reg 1B Reg 10 Reg 1A Reg 10 Reg 28 Reg 2A Reg 20 Reg 2D

Answer 1

1.a) From the standard point of the Audio Division the lowest acceptable transfer price for speakers sold to the Hi-Fi Division will be the $ 20 Variable Cost per unit, because that is the only cost it will include and it will not lose sales revenue at the intermediate selling price. Any higher price will increase its profits.

b)...From the standard of the Hi-Fi Division, the highest acceptable transfer price for transformersacquired from the Audio Division will be the $33. It is paying to the outside supplier. Any lower price will increase its profits.

c)....I would except the manager will reach an agreement because there is a price rage that is beneficial to both. ($ 20 to $ 33)

d)....From the standard point of the entire company the transfer is should take place , because it will avoid an outside purchase for a product it can make for cheaper.

2.a)..From the standard point of the Audio Division the lowest acceptable transfer price will now be the $ 46 selling price on the intermediate market ,and any lower sales price would lead to a decrese in profit.

b)...The highest acceptances transfer price from the standard point of the Hi Fi division is still $33.

c)....The divisional management is not voluntary transfer the speaker froAudio Division to Hi Fi division, because there is no price range that is beneficial to both division.

d)....From the standard point of the entire company it is also more profitable for the transfer not to take place, as it is more profitable to sell its product for $46 and buy the speakers from the outside supplier for $ 33.