Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer? Explain. 2. Refer to case 2 shown above. A study indicates Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? Explain. d. Assume Alpha Division offers to sell 30,000 units to Beta Division for $88 per unit and Beta Division refuses this price. What will be the company's loss in potential profits? 2d. The loss in potential profits to the company as a whole will be: Beta Division's outside purchase price... Alpha Division's variable cost on the internal transfer......... Potential added contribution margin lost to the company as a whole........ Number of units ........... Potential added contribution margin and company profits forgone.. Another way to derive the same answer is to look at the loss in potential profits for each division and then total the losses for the impact on the company as a whole. The loss in potential profits in Alpha Division will be: Suggested selling price per unit..... Alpha Division's variable cost on the internal transfer...... Potential added contribution margin per unit...... Number of units........... Potential added contribution margin and divisional profits forgone The loss in potential profits in Beta Division will be: Outside purchase price per unit.. Suggested price per unit inside. Potential cost avoided per unit.. Number of units Potential added contribution margin and divisional profits forgone The total of these two amounts equals the $ potential profits for the company as a whole. loss in

Required: 1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers agree to a transfer? Explain. 2. Refer to case 2 shown above. A study indicates Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? Explain. d. Assume Alpha Division offers to sell 30,000 units to Beta Division for $88 per unit and Beta Division refuses this price. What will be the company's loss in potential profits? 2d. The loss in potential profits to the company as a whole will be: Beta Division's outside purchase price... Alpha Division's variable cost on the internal transfer......... Potential added contribution margin lost to the company as a whole........ Number of units ........... Potential added contribution margin and company profits forgone.. Another way to derive the same answer is to look at the loss in potential profits for each division and then total the losses for the impact on the company as a whole. The loss in potential profits in Alpha Division will be: Suggested selling price per unit..... Alpha Division's variable cost on the internal transfer...... Potential added contribution margin per unit...... Number of units........... Potential added contribution margin and divisional profits forgone The loss in potential profits in Beta Division will be: Outside purchase price per unit.. Suggested price per unit inside. Potential cost avoided per unit.. Number of units Potential added contribution margin and divisional profits forgone The total of these two amounts equals the $ potential profits for the company as a whole. loss in

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 18E

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