Division N Has Asked Division M of the Same Company

question 4

Essay

Division N has asked Division M of the same company to supply it with 10,000 units of part P782 this year to use in one of its products.Division N has received a bid from an outside supplier for the parts at a price of $25.00 per unit.Division M has the capacity to produce 50,000 units of part P782 per year.Division M expects to sell 46,000 units of part P782 to outside customers this year at a price of $26.00 per unit.To fill the order from Division N,Division M would have to cut back its sales to outside customers.Division M produces part P782 at a variable cost of $17.00 per unit.The cost of packing and shipping the parts for outside customers is $1.00 per unit.These packing and shipping costs would not have to be incurred on sales of the parts to Division N.Required:
a.What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 10,000 parts this year from Division N to Division M?
b.Is it in the best interests of the overall company for this transfer to take place? Explain.(Note: Due to limitations in fonts and word processing software,> and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs. )

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Definitions:

BrandAsset Valuator

a strategic tool for assessing the strength and value of a brand based on dimensions such as differentiation, relevance, esteem, and knowledge.

Co-Branding

A marketing strategy where two or more brands collaborate to create a product or marketing campaign that leverages the equity of each brand.

Consumer Value

The perception of benefits received by a customer from a product or service compared to the costs incurred in obtaining it.

Brand Loyalty

The tendency of consumers to continuously purchase one brand's products over competing brands due to satisfaction, trust, or emotional connection.