Session 22 Solutions

Session 22 Solutions - Past Exam Question (2005) Blunt Inc....

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Past Exam Question (2005) Blunt Inc. manufactures and sells television sets. Blunt’s organizational structure consists of two profit centers: the Assembly Division (AD) buys television screens from the Screen Division (SD) and assembles the TV sets; the SD, which is operating at capacity , incurs an incremental manufacturing cost of $170 to produce each screen. The SD can sell all its output in the outside market at a price of $210 per screen, after incurring a variable distribution cost of $6 per screen. The AD can purchase screens from outside suppliers at a price of $210 per screen in which case it will incur a variable purchasing cost of $3 per screen. For all the following questions answers may vary across output. a) What is the minimum transfer price at which the SD manager would be willing to “sell” screens to the AD? Seller’s minimum TP = opportunity cost = 210 – 6 = 204
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b) What is the transfer price range for television screens, from SD to AD, that will maximize profits for Blunt? Before answering this question we should verify that the transfer would be
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Session 22 Solutions - Past Exam Question (2005) Blunt Inc....

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