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.



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