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 47 17 7 61,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 12,000 speakers per year. It has received a quote of $35 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits.

no work needed correct answers only please and thank you

Answer 1

1
a.	Lowest acceptable transfer price	$17
	Transfer price ³ Variable cost per unit + Total contribution margin on lost sales / No of units transferred
	Transfer price ≥ $17 + 0/12,000 = $17
b.	Highest acceptable transfer price	$35
	Transfer price ≤ Cost of buying from outside supplier = $35
c.	There is a range of acceptable transfer prices as shown below:
	$17 ≤ Transfer price ≤ $35
	Are the managers likely to agree on a transfer price?
	Yes
d.	Transfer should take place.
	The cost of the speakers transferred is only $17 and the company saves the $35
	cost of the speakers purchased from the outside supplier