Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio prod 1 answer below »

Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products Sales and cost data on the speaker follow:

Selling price per unit on the intermediate market$60

Variable costs per unit$42

Fixed costs per unit (based on capacity)$8

Capacity in units25,000

Sako Company has a Hi-Fi Division that could use this speaker in one of its products The Hi-Fi Division will need 5,000 speakers per year It has received a quote of $57 per speaker from another manufacturer Sako Company evaluates division managers on the basis of divisional profits

1 Assume that the Audio Division is now selling only 20,000 speakers per year to outside customers

A From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

B From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

C If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division? Why or why not?

D From the standpoint of the entire company, should the transfer take place? Why or why not?

2 Assume that the Audio Division is selling all of the speakers it can produce to outside customers

A From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?

B From the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?

C If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi-Fi Division? Why or why not?

D From the standpoint of the entire company, should the transfer take place? Why or why not?

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