One of the Divisions of Phoenix Corporation Is the Motor

question 42

Essay

One of the divisions of Phoenix Corporation is the Motor Division.This division currently is designing a new energy-efficient motor that would require a specialized filter.An outside company has offered to provide the 40,000 filters needed each year at $12.50 each.Phoenix is considering setting up a separate division,the Filter Division,to make the filters.The variable cost per unit would be $4,and total fixed costs incurred by the Filter Division would be $240,000.
Required:
1)If the Filter Division is established,Phoenix would need to determine the basis (market-based or other basis)to use in setting the transfer price.What basis would you recommend in this case?
2)What is the maximum transfer price that the Motor Division should be willing to pay for the filters?
3)What is the minimum transfer price that Filter Division should be willing to accept for the filters?
4)Should the transfer be made? What effect would the transfer have on the profits of Phoenix Corporation?

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Definitions:

Dural Venous Sinus

Vein-like spaces between the dura mater layers of the brain, draining blood from the brain.

Subarachnoid Space

The area between the arachnoid membrane and the pia mater around the brain and spinal cord, filled with cerebrospinal fluid.

Midsagittal Section

A vertical plane that divides the body into equal right and left halves, commonly used in anatomical terminology.

Right Half

Typically refers to the right side or hemisphere of an organ or the body, involved in specific functions distinct from the left side.