Figure 12-8 Bostonian Inc.has a Number of Divisions,including Delta Division and ListenNow

question 155

Essay

Figure 12-8
Bostonian Inc.has a number of divisions,including Delta Division and ListenNow Division.The ListenNow Division owns and operates a line of MP3 players.Each year the ListenNow Division purchases component AZ in order to manufacture the MP3 players.Currently it purchases this component from an outside supplier for $6.50 per component.The manager of the Delta Division has approached the manager of the ListenNow Division about selling component AZ to the ListenNow Division.The full product cost of component AZ is $3.10.The Delta Division can sell all of the components AZ it makes to outside companies for $6.50.The ListenNow Division needs 18,000 component AZs per year; the Delta Division can make up to 60,000 components per year.
Refer to Figure 12-8.Although the Delta Division has been operating at capacity (60,000 components per year),it expects to produce and sell only 45,000 components for $6.50 each next year.The Delta Division incurs variable costs of $1.50 per component.The company policy is that all transfer prices are negotiated by the divisions involved.
Required:
A.What is the maximum transfer price? Which division sets it?
B.What is the minimum transfer price? Which division sets it?
C.Suppose that the two divisions agree on a transfer price of $5.75.What is the change in operating income for the Delta Division? For the ListenNow Division? For Bostonian Inc.as a whole?

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Definitions:

Promote Good Sleep

Refers to practices or interventions designed to enhance the quality and duration of sleep.

Dimly Lit

An area or environment that has low levels of light, often creating a subdued or muted atmosphere.

Night Feeding

The act of feeding an infant or young child during the nighttime hours, which can affect their sleep patterns and overall nutrition.

Sporadic Sleep Patterns

Irregular sleep habits that do not follow a consistent pattern.