value 1000 points Wallen Products Inc has just purchased a s

value 10.00 points Wallen Products Inc. has just purchased a small company that specializes in the manufacture of electronic tuners that are used as a component part of LCD TVs. Wallen Products is a decentralized company, will treat the newly acquired company as an autonomous division with full profit responsibility. The new division, called the Tuner Division, has the following revenue and costs associated with each tuner that it manufactures and sells and it $20 Seling price $11 Variable Fixed (based on a capacity of 100,000 tuners per year) 6 17 Operating income $ 3 Wallen Products also has an Assembly Division that assembles TVs. This division is currently purchasing 30.000 tuners per year from an overseas supplier at a cost of $20 pr tuner, less a 10% purchase discount. The president of Wallen Products is arxious to have the Assembly Division begin purchasing its tuners from the newly acquired Tuner Division in order to \'keep the profts within the corporate family Required: For (1) and (2) below, assume that the Tuner Division can sell all of its output to outside TV manufacturers at the normal $20 price. 1.a. What is the minimum transfer price for Tuner Division? 1b. What is the maximum transfer price that Assembly Division is ready to transfer R216034

Solution

Solution 1a:

As Tuner division can sell all of its output to outside TV manufacturers it means there is no spare capacity available in turner division, therefore

Minimum transfer price for tuner division is the selling price to regular customer i.e. = $20 per unit

Solution 1b:

Maximum transfer price that assembly division is ready to pay will be the price offered by overseas supplier. Therefore maximum transfer price for assembly division = $20 - $20*10% = $18 per unit