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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 85% 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

given that

annual capacity = 83700 units

variable cost = $13

operators capacity = 85%

total capacity = annual capacity / operators capacity

= 83700 / 85%

= 98470 (rounded off)

vacant capacity = total capacity - annual capacity

=98470 - 83700

= 14770 units

additional quantity required = 25110 units

so, the required quantity can not be manufactured in the vacant capacity with loss of the contribution

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

therefore , the minimum transfer price = 13 per battery

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

therefore, the maximum transfer price is = 19 per battery

the range of transfer price is 18.5 :

18.5 is morethan 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 battary division should accept the offer to transfer the battary with the cost of $ 18.5

ekkarill92 answered 1 year ago
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