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Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:Selling price per unit on the intermediate market $ 140Variable costs per unit $ 122Fixed costs per unit (based on capacity) $ 8Capacity in units 25,000Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $137 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits.Required:1. Assume the Audio Division sells only 20,000 speakers per year to outside customers.a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?b. From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?c. What is the range of acceptable transfer prices (if any) between the two divisions? If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division?d. From the standpoint of the entire company, should the transfer take place?

Sagot :

The department that handles the production of goods and services is known as the manufacturing department. It is the department in price of supplying the products and services that customers want to buy.

A. Audio Division has a spare capacity of 9000 speakers if it is currently only selling 49,000 speakers per year to external clients at the stated $43 price.

From the standpoint of the audio division, the lowest allowable transfer price is equal to the variable cost per speaker.

= $20

b. The highest transfer price that the Hi-Fi Division will take is $35 per speaker for the marker price from an outside source.

c. $20 to $35 is the permitted transfer price range (if any) between the two divisions.

Yes, it is conceivable that the executives of the Audio and Hi-Fi Divisions will willingly accept a transfer price for 9,000 speakers.

d. This transfer should happen, both from the perspective of the company and the individual.

Choice 2:

The lowest transfer price that Audio Division will accept is the selling price, or $43 per speaker, if it can sell all of its speakers to outside clients for that amount.

b. The highest transfer price that the Hi-Fi Division will accept is $35 per speaker at market value from an outside provider.

c. The permissible price range between the two divisions (if there is one) cannot be determined because the lowest acceptable price for the audio division is higher than the highest acceptable price for the Hifi division.

It is unlikely that the manager of the Audio and Hi-Fi division will willingly accept the transfer price for 9,000 speakers.

d. This transfer should not happen from the perspective of the entire organization as well.

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