The Pen and Pencil Divisions are part of the same company. Currently the Pencil Division buys a part ingredient from Pen for $96. The Pen Division wants to increase the price of the part it sells to Pencil by $24 to $120. The manager of Pencil has stated that it cannot afford to go that high, as it will decrease the division's profit to near zero. Pencil can buy the part from an outside supplier for $112. The cost data for the Pen Division is as follows:
If Pen ceases to produce the parts for Pencil, it will be able to avoid one-third of the fixed manufacturing overhead. The Pen Division has excess capacity but no alternative uses for its facilities.
-What is the minimum transfer price that should be charged?
Definitions:
Concept of Motivation
A psychological construct that explains the initiation, direction, intensity, and persistence of behaviors or actions towards achieving a particular goal.
Personal Dispositions
Traits that are peculiar to an individual, as opposed to traits shared by a number of people.
Individual Traits
Unique characteristics and qualities that distinguish one person from another, influencing behaviors and attitudes.
Constructs
Abstract concepts or theoretical variables that are used to measure, understand, and interpret psychological phenomena.
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