Aberzombie, Inc

question 82

Essay

Aberzombie, Inc. has 2 divisions, Alpha and Beta. Beta produces a unit that sells for $50, with the following costs based on its capacity of 250,000 units:
Direct materials $15.00
Direct labour 12.50
Variable overhead 2.50
Fixed overhead 7.50
At present Beta does not sell any units to Alpha. Beta is selling 150,000 units externally, and Alpha is purchasing 75,000 units from an outside supplier for $45 per unit.
a)Determine the benefit, if any, to Beta in meeting the outside supplier's price.
b)Determine the lowest price Beta would be willing to accept.
c)Assume that a transfer price of $50 is used between Alpha and Beta. Determine the effect on the profits of Alpha, Beta, and Aberzombie, Inc.

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Definitions:

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