Division Y Has Asked Division X of the Same Company

question 224

Essay

Division Y has asked Division X of the same company to supply it with 8,800 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 $52 per unit. Division X has the capacity to produce 35,200 units of part L763 per year. Division X expects to sell 31,680 units of part L763 to outside customers this year at a price of $56.80 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 $44 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 8,800 parts this year from Division X to Division Y? (Round your final answers to 2 decimal places.)b. Is it in the best interests of the overall company for this transfer to take place?

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Definitions:

Group Creativity Skills

Capabilities possessed by a team that facilitate generating innovative ideas and solutions collaboratively.

Heuristics

Mental shortcuts or rules of thumb that simplify decision-making processes, but do not guarantee optimal solutions.

Goal Orientation

The direction and persistence of behavior guided by individual goals and the strategies to achieve them.

Creativity Skill Sets

A collection of abilities and techniques that enable an individual to generate new ideas, solutions, or approaches.