1.) Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their ow

[answerhappygod]

1.)
Alpha and Beta are divisions within the same company. The
managers of both divisions are evaluated based on their own
division’s return on investment (ROI). Assume the following
information relative to the two divisions:
*Before any purchase discount.
Required:
A. Refer to case 1 shown above. Alpha Division
can avoid $6 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 probably agree to a
transfer?
B. Refer to case 2 shown above. A study
indicates that Alpha Division can avoid $6 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?
d. Assume Alpha Division offers to sell 70,000 units to Beta
Division for $38 per unit and that Beta Division refuses this
price. What will be the loss in potential profits for the company
as a whole?
C. Refer to case 3 shown above. Assume that
Beta Division is now receiving an 4% price discount from the
outside supplier.
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 probably agree to a
transfer?
d. Assume Beta Division offers to purchase 22,000 units from
Alpha Division at $59.32 per unit. If Alpha Division accepts this
price, would you expect its ROI to increase, decrease, or remain
unchanged?
D. Refer to case 4 shown above. Assume that
Beta Division wants Alpha Division to provide it with 66,000 units
of a different product from the one Alpha Division is producing
now. The new product would require $31 per unit in variable costs
and would require that Alpha Division cut back production of its
present product by 33,000 units annually. What is Alpha Division's
lowest acceptable transfer price?