Division B Has Asked Division a of the Same Company

question 12

Essay

Division B has asked Division A of the same company to supply it with 4,000 units of part K932 this year to use in one of its products. Division B has received a bid from an outside supplier for the parts at a price of $31.00 per unit. Division A has the capacity to produce 10,000 units of part K932 per year. Division A expects to sell 8,000 units of part K932 to outside customers this year at a price of $36.00 per unit. To fill the order from Division B, Division A would have to cut back its sales to outside customers. Division A produces part K932 at a variable cost of $18.00 per unit. The cost of packing and shipping the parts for outside customers is $3.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division
B.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 4,000 parts this year from Division B to Division A?
b.Is it in the best interests of the overall company for this transfer to take place? Explain.

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Definitions:

Construct Validity

The degree to which a test or instrument measures the theoretical concept it is intended to measure.

Cognitive Deficits

Impairments in mental processes such as thinking, memory, and reasoning.

Learning Disabilities

Neurodevelopmental disorders that affect the brain's ability to receive, process, store, respond to, and communicate information, leading to challenges in learning.

Psychological Counseling

The process of assisting individuals to understand and manage their psychological issues, emotional problems, or life difficulties through professional guidance.