Answer Happy

7. In each of the cases below, assume 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. Case A B Division X: Capacity in units 98,000 106,000 Number of units being sold to outside customers 98,000 88,000 Selling price per unit to outside customers $ 51 $ 27 Variable costs per unit $ 28 $ 17 Fixed costs per unit (based on capacity) $ 7 $ 4 Division Y: Number of units needed for production 18,000 18,000 Purchase price per unit now being paid to an outside supplier $ 49 $ 34 a. What is the minimum transfer price that Division X will be willing to accept in each case? b. What is the maximum transfer price that Division Y will be willing to pay in each case? c. in each case, what is the range of acceptable transfer prices (if any) between the two divisions? If the managers are free to negotiate and make decisions on their own, should the managers of each division agree to an internal transfer??