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: Selling price per unit on the intermediate market $ 136 Variable costs per unit $ 118 Fixed costs per unit (based on capacity) $ 8 Capacity in units 25,000 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 $133 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits. Required: Assume the Audio Division sells only 20,000 speakers per year to outside customers. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? 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? From the standpoint of the entire company, should the transfer take place? Assume the Audio Division is selling 22,500 speakers per year to outside customers. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? 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? From the standpoint of the entire company, should the transfer take place? Assume the Audio Division is selling 25,000 speakers per year to outside customers. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division? From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division? 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? From the standpoint of the entire company, should the transfer take place?

The question is asking to calculate the lowest and highest acceptable transfer prices for speakers sold to the Hi-Fi Division from the Audio Division under different scenarios. It also asks to determine the range of acceptable transfer prices and whether the transfer should take place from the standpoint of the entire company.1. When the Audio Division sells only 20,000 speakers per year to outside customers: a. The lowest acceptable transfer price for the Audio Division is the variable cost per unit, which is $118. This is because the Audio Division would not want to sell the speakers for less than it costs to produce them. b. The highest acceptable transfer price for the Hi-Fi Division is the price quoted by the other manufacturer, which is $133. This is because the Hi-Fi Division would not want to pay more for the speakers than it could get them for elsewhere. c. The range of acceptable transfer prices is therefore $118 to $133. If left free to negotiate without interference, the division managers would likely agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division, as the Audio Division has spare capacity and the Hi-Fi Division can get the speakers at a lower price than from the other manufacturer. d. From the standpoint of the entire company, the transfer should take place as it would increase overall profits by reducing costs for the Hi-Fi Division and increasing sales for the Audio Division.2. When the Audio Division is selling 22,500 speakers per year to outside customers: a. The lowest acceptable transfer price for the Audio Division is still the variable cost per unit, which is $118. However, as the Audio Division is now closer to its capacity, it may want to charge a higher price to make the transfer worthwhile. b. The highest acceptable transfer price for the Hi-Fi Division remains the price quoted by the other manufacturer, which is $133. c. The range of acceptable transfer prices is therefore still $118 to $133. However, the division managers may be less likely to agree to the transfer as the Audio Division is now closer to its capacity and may want to reserve its remaining capacity for higher-priced sales to outside customers. d. From the standpoint of the entire company, the transfer should still take place as it would still increase overall profits, although the benefit may be less than in the first scenario due to the Audio Division's reduced spare capacity.3. When the Audio Division is selling 25,000 speakers per year to outside customers: a. The lowest acceptable transfer price for the Audio Division is now the selling price per unit on the intermediate market, which is $136. This is because the Audio Division is now at capacity and would not want to sell the speakers for less than it could get from outside customers. b. The highest acceptable transfer price for the Hi-Fi Division remains the price quoted by the other manufacturer, which is $133. However, this is now lower than the lowest acceptable transfer price for the Audio Division, so the Hi-Fi Division would not want to buy the speakers from the Audio Division. c. There is now no range of acceptable transfer prices as the lowest acceptable transfer price for the Audio Division is higher than the highest acceptable transfer price for the Hi-Fi Division. d. From the standpoint of the entire company, the transfer should not take place as it would reduce overall profits by causing the Audio Division to lose higher-priced sales to outside customers and the Hi-Fi Division to pay more for the speakers than it could get them for elsewhere.The lowest and highest acceptable transfer prices for speakers sold to the Hi-Fi Division from the Audio Division depend on the Audio Division's capacity utilization. When the Audio Division has spare capacity, the transfer should take place as it increases overall company profits. However, when the Audio Division is at capacity, the transfer should not take place as it reduces overall company profits.

Answered: 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: Selling…

FINANCIAL ACCOUNTING

10th Edition

ISBN: 9781259964947

Author: Libby

Publisher: MCG

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Selling price per unit on the intermediate market	$ 136
Variable costs per unit	$ 118
Fixed costs per unit (based on capacity)	$ 8
Capacity in units	25,000

Required:

Assume the Audio Division sells only 20,000 speakers per year to outside customers.
1. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
2. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
3. 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?
4. From the standpoint of the entire company, should the transfer take place?
Assume the Audio Division is selling 22,500 speakers per year to outside customers.
1. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
2. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
3. 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?
4. From the standpoint of the entire company, should the transfer take place?
Assume the Audio Division is selling 25,000 speakers per year to outside customers.
1. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
2. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
3. 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?
4. From the standpoint of the entire company, should the transfer take place?

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