Belfield Corporation Includes Two Divisions,Motor Division and Lawnmower Division

question 59

Essay

Belfield Corporation includes two divisions,Motor Division and Lawnmower Division.The Motor Division makes specialized motors,including one that could be used by the Lawnmower Division.Costs for the motor are: variable costs,$16;fixed costs,$20.The Motor Division has capacity to make 20,000 of the motors,and it is operating at capacity.It sells the motors to other companies for $52 each.If a sale was made to the Lawnmower Division,variable costs would be reduced by $4 per motor on those units.The Lawnmower Division needs 8,000 motors per year,and it has been purchasing them from another company for $45 each.
Required:
1)If a transfer were to occur between Motor Division and Lawnmower Division,what is the maximum that Lawnmower Division should be willing to pay for the motors?
2)If a transfer were to occur between Motor Division and Lawnmower Division,what is the minimum price that Motor Division should be willing to accept?
3)Do you recommend that a transfer occur between Motor Division and Lawnmower Division? If the transfer did occur,what would be the effect on the overall profits of Belfield Corporation?

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Definitions:

Payoff

The expected financial returns or benefits received from an investment, decision, or action.

Long-Run Equilibrium

A state in which all firms in a market are making normal profits, with no incentive to enter or exit the market.

Attendance

The act of being present at a location, such as in the workplace or at an event.

Time-Discounted Value

The concept in finance and economics that future money or utility is worth less than the same amount of money or utility today due to the potential earning capacity of money over time.