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Unformatted text preview: ACC 333 (Farrell) Classes 22 & 24 Fall 2011 Page 1 of 2 In-class Activity #1 - Transfer Pricing at TwoTier Auto Components TwoTier Auto Parts, an automobile parts manufacturer, is heavily decentralized. Each division head has full authority on all decisions regarding sales to internal and external customers. The Engine Division has always acquired a certain engine component from the Metal Fabricating Division. However, when informed that the Metal Fabricating Division was increasing its unit price to $330, the Engine Division s manager decided to purchase the component from outside suppliers at a price of $300. The Metal Fabricating Division had recently acquired some specialized equipment that was used primarily to make this component for the Engine Division. The Metal Fabricating manager cited the high depreciation charges on the equipment as justification for the price boost. He asked the president of TwoTier to force the Engine Division to buy from Metal Fabricating at the $330 price. He supplied the following data to back his request. Engine s annual purchases of component 3,000 units Metal Fabricating s variable costs per unit $285 Metal Fabricating s fixed costs per unit $30 1) Suppose there are no alternative uses of the Metal Fabricating facilities if the Engine Division purchases...
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  • Fall '11
  • Anne
  • Printed circuit board, Engine Division, Metal Fabricating Division, Transistor Division Systems Division Board Division, Metal Fabricating

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