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:

Rousseau

Jean-Jacques Rousseau, an influential 18th-century philosopher known for his contributions to political philosophy, education, and literature.

Looking Glass

A metaphorical concept describing how an individual's self-understanding is shaped by how others perceive them.

Charles Horton Cooley

An early sociologist known for his theory of the "Looking Glass Self," which explains how individuals develop their sense of self through interactions with others and the perceptions of how they are viewed.

Self-Concept

An individual's understanding and evaluation of their own abilities, appearance, and personality, which develops through social interactions.