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In cases 1-3 below, assume that Division A has a product that can be sold either to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own divisions return on investment (ROI). The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated. Treat each case independently.

	Case
	1	2	3	4
Division A:
Capacity in units	52,000	282,000	102,000	204,000
Number of units now being sold to outside customers	52,000	282,000	76,000	204,000
Selling price per unit to outside customers	$103	$44	$66	$46
Variable costs per unit	$66	$23	$40	$32
Fixed costs per unit (based on capacity)	$28	$10	$23	$7
Division B:
Number of units needed annually	9,300	68,000	21,000	62,000
Purchase price now being paid to an outside supplier*	$93	$41	$66

* Before any purchase discount.

Required:
1.	Refer to case 1. A study has indicated that Division A can avoid $5 per unit in variable costs on any sales to Division B.

a.	What is the minimum transfer price for Division A? (Omit the "$" sign in your response.)

Minimum transfer price

$

b.	What is the maximum transfer price for Division B? (Omit the "$" sign in your response.)

Maximum transfer price

$

c.	Will the managers agree to a transfer?

No Yes

2.	Refer to case 2. Assume that Division A can avoid $6 per unit in variable costs on any sales to Division B.

a-1.	What is the minimum transfer price for Division A? (Omit the "$" sign in your response.)

Minimum transfer price

$

a-2.	What is the maximum transfer price for Division B? (Omit the "$" sign in your response.)

Maximum transfer price

$

a-3.	Would you expect any disagreement between the two divisional managers over what the transfer price should be?
	No Yes

b.	Assume that Division A offers to sell 68,000 units to Division B for $40 per unit and that Division B refuses this price. What will be the loss in potential profits for the company as a whole? (Input the amount as a positive value. Omit the "$" sign in your response.)

Loss in potential profits for the company

$

3.	Refer to case 3. Assume that Division B is now receiving a 6% price discount from the outside supplier.

a-1.	What is the minimum transfer price for Division A? (Omit the "$" sign in your response.)

Minimum transfer price

$

a-2.	What is the range of transfer price the manager's of both divisions should agree? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

The transfer price can be a lowest of $ and a highest of $ .

a-3.	Will the managers agree to a transfer?
	No Yes

b.	Assume that Division B offers to purchase 21,000 units from Division A at $57.04 per unit. If Division A accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

Division A's ROI should

(Click to select)unchangedincreasedecrease

4.

Refer to case 4. Assume that Division B wants Division A to provide it with 62,000 units of a different product from the one that Division A is now producing. The new product would require $28 per unit in variable costs and would require that Division A cut back production of its present product by 31,000 units annually. What is the lowest acceptable transfer price from Division A's perspective? (Round your intermediate and final answers to 2 decimal places. Omit the "$" sign in your response.)

Transfer price

$

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