Assume that Division A has a product that can be sold either to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own division's return on investment (ROI). The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Division A: Capacity in units = 300,000 Number of units now being sold to outside customers = 300,000 Selling price per unit on the outside market = $41 Variable costs per unit = $19 Fixed costs per unit (based on capacity) = 12 Division B: Number of units needed annually = 100,000 Purchase price now being paid to an outside supplier = $38 Assume that Division A can avoid $6 per unit in variable costs on any sales to Division B. Which one of the following statements is most correct regarding the division managers' response to the opportunity for the internal transfer? O the managers will not agree to a transfer O the managers will agree to a transfer at a price between $38 and $410 O the managers will agree to a transfer at a price between $19 and $38 the managers will agree to a transfer at a price between $35 and $38 the managers will agree to a transfer at a price between $36 and $39
Assume that Division A has a product that can be sold either to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own division's return on investment (ROI). The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Division A: Capacity in units = 300,000 Number of units now being sold to outside customers = 300,000 Selling price per unit on the outside market = $41 Variable costs per unit = $19 Fixed costs per unit (based on capacity) = 12 Division B: Number of units needed annually = 100,000 Purchase price now being paid to an outside supplier = $38 Assume that Division A can avoid $6 per unit in variable costs on any sales to Division B. Which one of the following statements is most correct regarding the division managers' response to the opportunity for the internal transfer? O the managers will not agree to a transfer O the managers will agree to a transfer at a price between $38 and $410 O the managers will agree to a transfer at a price between $19 and $38 the managers will agree to a transfer at a price between $35 and $38 the managers will agree to a transfer at a price between $36 and $39
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Assume that Division A has a product that can be sold either to Division B of the same
company or to outside customers. The managers of both divisions are evaluated based on
their own division's return on investment (ROI). The managers are free to decide if they will
participate in any internal transfers. All transfer prices are negotiated.
Division A:
Capacity in units = 300,000
Number of units now being sold to outside customers = 300,000
Selling price per unit on the outside market = $41
Variable costs per unit = $19
Fixed costs per unit (based on capacity) = 12
Division B:
Number of units needed annually = 100,000
Purchase price now being paid to an outside supplier = $38
Assume that Division A can avoid $6 per unit in variable costs on any sales to Division B.
Which one of the following statements is most correct regarding the division managers'
response to the opportunity for the internal transfer?
the managers will not agree to a transfer
the managers will agree to a transfer at a price between $38 and $410
O the managers will agree to a transfer at a price between $19 and $38
O the managers will agree to a transfer at a price between $35 and $38
O the managers will agree to a transfer at a price between $36 and $39
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