102) Crickmore Industries has two divisions, the D division and the J division. Information about a component that the D division produces is as follows:
Revenue$100 per unit
Variable manufacturing costs $25 per unit
Fixed manufacturing overhead$15 per unit
Expected sales in units7,000 units
The D division can produce up to 8,000 components per year. The J division needs 500 units of the component for a product it manufactures.
a. Determine the minimum transfer price that the D division would accept.
b. Determine the maximum transfer price that the manager of the J division would pay.
c. How would your answers to requirements [A] and [B] above, change if the D division did not have excess capacity?
103) Stirton Industries is a decentralized company that evaluates its divisions based on ROI.
Division R has the capacity to make 10,000 units of a product. Division R’s variable costs are $60 per unit.
Division J can use the product as a component in one of its products. Division J would incur $40 of variable costs to convert the component into its own product, which sells for $200.
The following requirements are independent of each other.
a. Division R can sell all that it produces for $120 each. Division J needs 1,000 units. What is the correct transfer price?
b. Division R can sell 8,000 units at $150 each. Any excess capacity will be unused unless the units are purchased by the J division, which could use up to 1,000 units. Determine the floor and ceiling of the bargaining range.