Division Y has asked Division X of the same company to supply it with 8,400 units of part L763 this year to use in one of its products. Division Y has received a bid from an outside supplier for the parts at a price of $50 per unit. Division X has the capacity to produce 33,600 units of part L763 per year. Division X expects to sell 30,240 units of part L763 to outside customers this year at a price of $54.40 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces part L763 at a variable cost of $42 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Y. Required: a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 8,400 parts this year from Division X to Division Y? (Round your final answers to 2 decimal places.) Range of transfer prices:______
Division Y has asked Division X of the same company to supply it with 8,400 units of part L763 this year to use in one of its products. Division Y has received a bid from an outside supplier for the parts at a price of $50 per unit. Division X has the capacity to produce 33,600 units of part L763 per year. Division X expects to sell 30,240 units of part L763 to outside customers this year at a price of $54.40 per unit. To fill the order from Division Y, Division X would have to cut back its sales to outside customers. Division X produces part L763 at a variable cost of $42 per unit. The cost of packing and shipping the parts for outside customers is $2 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division Y.
Required:
a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 8,400 parts this year from Division X to Division Y? (Round your final answers to 2 decimal places.)
Range of transfer prices:______<Transfer Price<__________
b. Is it in the best interests of the overall company for this transfer to take place?
multiple choice
-
Yes
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No
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