Question

In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits. Case A B Division X: Capacity in units 99,000 107,000 Number of units being sold to outside customers 99,000 89,000 Selling price per unit to outside customers $54 $27 Variable costs per unit $26 $14 Fixed costs per unit (based on capacity) $7 $4 Division Y: Number of units needed for production 18,000 18,000 Purchase price per unit now being paid to an outside supplier $49 $28 16.value: 5.00 pointsRequired information Required: 1-a. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division. What is the range of transfer price the managers of both divisions should agree?

Answer 1