Posted: April 17th, 2024

In each of the cases below, assume that Division X

In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.CaseABDivision X:Capacity in units100,000100,000Number of units being sold to outside customers100,00080,000Selling price per unit to outside customers$50$35Variable costs per unit$30$20Fixed costs per unit (based on capacity)$8$6Division Y:Number of units needed for production20,00020,000Purchase price per unit now being paid to anoutside supplier$47$34Required:1a.Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales. (Omit the "$" sign in your response.)Transfer price$1b.If the managers are free to negotiate and make decisions on their own, will a transfer take place?YesNo2a.Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division. (Omit the "$" sign in your response.)Transfer price$2b.If the managers are free to negotiate and make decisions on their own, will a transfer take place?YesNo2c.What is the range of transfer price the managers of both divisions should agree? (Omit the "$" sign in your response.)The transfer price can be a lowest of $ and a highest of $ .

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