Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $60. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $60 each, it expects to produce and sell only 40,000 dressers for $60 each next year. The Furniture Division incurs variable costs of $16 per dresser. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. The company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $fill in the blank 1 Which division sets it? 2. What is the minimum transfer price? $fill in the blank 3 Which division sets it? 3. Suppose that the two divisions agree on a transfer price of $33. What is the benefit for the Furniture Division? For the Motel Division? For Aulman Inc. as a whole? Benefit to Furniture Division $fill in the blank 5 Benefit to Motel Division $fill in the blank 6 Benefit to company $fill in the blank 7
Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $60. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29.
While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $60 each, it expects to produce and sell only 40,000 dressers for $60 each next year. The Furniture Division incurs variable costs of $16 per dresser.
The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. The company policy is that all transfer prices are negotiated by the divisions involved.
Required:
1. What is the maximum transfer price?
$fill in the blank 1
Which division sets it?
2. What is the minimum transfer price?
$fill in the blank 3
Which division sets it?
3. Suppose that the two divisions agree on a transfer price of $33. What is the benefit for the Furniture Division? For the Motel Division? For Aulman Inc. as a whole?
| Benefit to Furniture Division | $fill in the blank 5 |
| Benefit to Motel Division | $fill in the blank 6 |
| Benefit to company | $fill in the blank 7 |
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