Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost

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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:
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 $97 per speaker from another
manufacturer. Sako Company evaluates division managers on the basis
of divisional profits.
Required:
1. Assume the Audio Division sells only 20,000 speakers per year
to outside customers.
a. From the standpoint of the Audio Division, what is the lowest
acceptable transfer price for speakers sold to the Hi-Fi
Division?
b. From the standpoint of the Hi-Fi Division, what is the
highest acceptable transfer price for speakers acquired from the
Audio Division?
c. What is the range of acceptable transfer prices (if any)
between the two divisions? If left free to negotiate without
interference, would you expect the division managers to voluntarily
agree to the transfer of 5,000 speakers from the Audio Division to
the Hi-Fi Division?
d. From the standpoint of the entire company, should the
transfer take place?


2. Assume the Audio Division is selling 22,500 speakers per year to
outside customers.
a. From the standpoint of the Audio Division, what is the lowest
acceptable transfer price for speakers sold to the Hi-Fi
Division?
b. From the standpoint of the Hi-Fi Division, what is the
highest acceptable transfer price for speakers acquired from the
Audio Division?
c. What is the range of acceptable transfer prices (if any)
between the two divisions? If left free to negotiate without
interference, would you expect the division managers to voluntarily
agree to the transfer of 5,000 speakers from the Audio Division to
the Hi-Fi Division?
d. From the standpoint of the entire company, should the
transfer take place?
3. Assume the Audio Division is selling 25,000 speakers per year
to outside customers.
a. From the standpoint of the Audio Division, what is the lowest
acceptable transfer price for speakers sold to the Hi-Fi
Division?
b. From the standpoint of the Hi-Fi Division, what is the
highest acceptable transfer price for speakers acquired from the
Audio Division?
c. What is the range of acceptable transfer prices (if any)
between the two divisions? If left free to negotiate without
interference, would you expect the division managers to voluntarily
agree to the transfer of 5,000 speakers from the Audio Division to
the Hi-Fi Division?
d. From the standpoint of the entire company, should the
transfer take place?