Division Y Has Asked Division X of the Same Company

question 140

Essay

Division Y has asked Division X of the same company to supply it with 5,000 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 $33.00 per unit. Division X has the capacity to produce 20,000 units of part L763 per year. Division X expects to sell 18,000 units of part L763 to outside customers this year at a price of $34.00 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 $25.00 per unit. The cost of packing and shipping the parts for outside customers is $2.00 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 5,000 parts this year from Division Y to Division X?b. Is it in the best interests of the overall company for this transfer to take place? Explain.

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Definitions:

Independent

The condition or quality of being autonomous and free from external control or support.

Self-Awareness

The conscious knowledge of one's own character, feelings, motives, and desires.

Emotional Development

The process by which individuals learn to understand and manage their emotions, which plays a crucial role in social interactions and personal growth.

Embarrassment

A feeling of self-consciousness, shame, or awkwardness that arises from an uncomfortable or socially awkward situation.