Division X of Charter Corporation makes andsells a single product that's used bymanufacturers of forklift trucks. Presently itsells 12,000 units per year to outsidecustomers at $24 per unit. The annualcapacity is 20,000 units, and the variable costto make each unit is $16. Division Y of CharterCorporation would like to buy 10,000 units ayear from Division X to use in its products.There would be no cost savings fromtransferring the units within the companyrather than selling them on the outsidemarket. What should be the lowestacceptable transfer price from the perspectiveof Division X?

Charter Corporation has two Divisions X & Y Division X total Capacity = 20000 units Outside…

Answered: Division X of Charter Corporation makes…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 $ 136 Variable costs per unit $ 118 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $133 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: Assume the Audio Division sells only 20,000 speakers per year to outside customers. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? What is the range of…
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