Walton Industries Has Two Divisions: Machining and Assembly

question 31

Essay

Walton Industries has two divisions: Machining and Assembly.The Assembly Division is looking to source 20,000 units annually of specialized component product from Machining Division.The special components have variable costs of $260 per unit in variable production costs.The Machine Products Division has a bid from an outside supplier of $445 per unit.However, to meet the requirements of the Assembly Division, Machining would have to cut back production of an existing product.This product sells for $565 per unit, and requires $369 per unit in variable production costs.Packaging and shipping costs of the existing product are $12 per unit, but these would be slashed by 75% for the specialized component for Assembly.Machining currently sells 120,000 units of the existing product and this volume would have to be reduced by 25% to meet the Assembly Division's demand.Required:
Should the transfer take place, and if so, what would be the range of acceptable transfer prices?

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Definitions:

Prima Facie

In legal terminology, this means on the face of it or at first glance, indicating evidence that is sufficient to establish a fact unless disproven by contrary evidence.

Disparate-Treatment Discrimination

A form of employment discrimination that results when an employer intentionally discriminates against employees who are members of protected classes.

Discrimination

Discriminatory behavior that unfairly disadvantages various groups based on their race, age, or gender.

Ceramic Workers Union

A labor union representing workers in the ceramics industry, focusing on collective bargaining, working conditions, and workers' rights.