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Bramble Electronics operates as a decentralized company. Bramble’s Battery division manufactures batter chargers that are sold...

Bramble Electronics operates as a decentralized company. Bramble’s Battery division manufactures batter chargers that are sold both externally to outside customers and internally to the Camera division. Battery division’s annual capacity is 83,700 units. The revenue and costs associated with one battery charger are as follows:

Selling Price to external customers $21
Variable Cost 13
Fixed Cost (based on capacity) 4


The Camera division would like to purchase 25,110 units of battery chargers; however, Cameron, the manager of the Camera division, is able to purchase the battery charger from an overseas supplier at $19.

Assuming the Battery division operates at 60% capacity, what is the range of the transfer price, if any, for the battery charger? Cameron has learned that the Battery division operates below its capacity. He is willing to pay up to $18.50 for a battery charger. Should the Battery division accept the offer at $18.50?

  

   Minimum ? TP ?

Maximum

The range $_______   ? TP ? $_________

The Battery division _____(should/should not) accept the offer to transfer the battery chargers at $18.50.

Solutions

Expert Solution

Current capacity = 60%

Total capacity =83700 / 60% = 139500

Vacant capacity = 139500 - 83700 = 54800 units

Additional Quantity required = 25100 units

So, the required quantity can be manufactured in the vacant capacity without any loss of the contribution.

The Battery division would atleast want to recover its variable costs incurred on manufacturing.

Therefore, minimum transfer price = $13 per battery.

As regards the maximum transfer price, the Camera division can pay at maximum what it is paying in the market for one battery.

Therefore, maximum transfer price is $19 per battery.

Therefore, range of transfer price is -

More than or equal to $13 and less than or equal to $19

The Camera division is willing to pay $18.5 per battery which is more than the minimum transfer price of $13 required by the Battery division.

Therefore, The Battery division SHOULD accept the offer to transfer the battery at $18.5

ekkarill92 answered 1 year ago
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