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:

International Jurisdiction

The legal authority granted to a country or international body to regulate matters involving parties, activities, or conduct that crosses international boundaries.

Jurisdiction

Refers to the official power to make legal decisions and judgments.

Internet Transactions

Commercial activities conducted online, including the buying and selling of goods and services.

Jurisdiction

The official power to make legal decisions and judgments, often defined by geographical area or specific types of legal cases.