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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?
Fuel Trim
An adjustment to fuel delivery by the engine control module, based on input from the oxygen sensors.
Fuel Delivery
The system or process responsible for supplying fuel from the fuel tank to the engine's combustion chamber.
Short-Term Fuel Trims
Adjustments made by a vehicle's engine control unit (ECU) to the fuel mixture in response to temporary changes in air/fuel demand.
Long-Term Fuel Trims
Adjustments made by a vehicle's engine control unit to the fuel mixture over an extended period to maintain optimal combustion and efficiency.
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