Halber Industries Is a Decentralized Company That Evaluates Its Divisions

Halber Industries is a decentralized company that evaluates its divisions based on ROI. The Brock Division has the capacity to make 2,000 units of a component. The Brock Division's variable costs are £80 per unit.
The Cliff Division can use the Brock component in the manufacturing of one of its own products. The Cliff Division would incur £60 of variable costs to convert the component into its own product, which sells for £300.
Required:
The following requirements are independent of each other:
a.
Assume the Brock Division can sell all of the components that it produces for £180 each. The Cliff Division needs 100 units. What is the correct transfer price?
b.
Assume the Brock Division can sell 1,800 units at £260. Any excess capacity will be unused unless the units are purchased by the Cliff Division, which could use up to 100 units.
Determine the minimum transfer price that the Brock Division would be willing to accept.
Determine the maximum transfer price that the Cliff Division would be willing to pay.

Correct Answer:

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