CoursHeroTranscribedText: 1. Suppose that the manager of Division A has the option of (a) cutting...
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CoursHeroTranscribedText: 1. Suppose that the manager of Division A has the option of (a) cutting the externa to $195, with the certainty that sales will rise to 1,000 units or (b) maintaining th external price of $200 for the 800 units and transferring the 200 units to division a price that would produce the same operating income for division A. What tran price would produce the same operating income for division A? Is that price consistent with that recommended by the general guideline so that the resulting decision would be desirable for the company as a whole? 2. Suppose that if the intermediate price for the intermediate product were dropp $195, sales to external parties could be increased to 900 units. Division B wants acquire as many as 200 units if the transfer price is acceptable. For simplicity ass that there is no external market for the final 100 units of division A's capacity. a) Using the general guideline, what is (are) the minimum transfer price(s) that should lead to the correct economic decision? Ignore performance-evaluation considerations. b) Compare the total contributions under the alternatives to show why the tran price(s) recommended lead(s) to the optimal economic decision
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