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Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50,...

Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50, with the following costs based on its capacity of 250,000 units:

Direct Materials

$15

Direct Labor

$12.50

Variable OH

$2.50

Fixed OH

$7.50

At present Beta does not sell any units to Alpha. Beta is selling 150,000 units externally, and Alpha is purchasing 75,000 units from an outside supplier for $45 per unit.

A.) What happens to Beta's income if it meets the outside supplier’s price, and transfers the 75,000 units to Alpha?

B.) Assume that a transfer price of $50 is used between Alpha and Beta. How does this affect the profits of Alpha, Beta, and Aberzombie, Inc (compared to when Alpha purchased the units from the outside supplier)?

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