Halber Industries Is a Decentralized Company That Evaluates Its Divisions

question 4

Essay

Halber Industries is a decentralized company that evaluates its divisions based on ROI. The Brock Division has the capacity to make 2,000 units of a component. The Brock Division's variable costs are £80 per unit.
The Cliff Division can use the Brock component in the manufacturing of one of its own products. The Cliff Division would incur £60 of variable costs to convert the component into its own product, which sells for £300.
a.Assume the Brock Division can sell all of the components that it produces for £180 each. The Cliff Division needs 100 units. What is the correct transfer price?
b.Assume the Brock Division can sell 1,800 units at £260. Any excess capacity will be unused unless the units are purchased by the Cliff Division, which could use up to 100 units.Determine the minimum transfer price that the Brock Division would be willing to accept.Determine the maximum transfer price that the Cliff Division would be willing to pay.

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Definitions:

Article 2A

A provision within the Uniform Commercial Code that governs the leasing of personal property in the United States.

Leases

Contracts in which one party (the landlord) grants another party (the tenant) the right to use real estate for a specified period in exchange for payment.

UCC

Uniform Commercial Code, a comprehensive set of laws governing all commercial transactions in the United States.

Breach of Contract

Occurs when one or more parties involved in a contract fail to fulfill their legal obligations as stipulated in the agreement, potentially leading to legal action for damages or specific performance.