Stirton Industries Is a Decentralized Company That Evaluates Its Divisions

Stirton Industries is a decentralized company that evaluates its divisions based on ROI.
Division R has the capacity to make 10,000 units of a product. Division R's variable costs are $60 per unit.
Division J can use the product as a component in one of its products. Division J would incur $40 of variable costs to convert the component into its own product, which sells for $200.
The following requirements are independent of each other.
a. Division R can sell all that it produces for $120 each. Division J needs 1,000 units. What is the correct transfer price?
b. Division R can sell 8,000 units at $150 each. Any excess capacity will be unused unless the units are purchased by the J division, which could use up to 1,000 units. Determine the floor and ceiling of the bargaining range.

Correct Answer:

Verified

a.
The transfer price would be the marke...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

View Full Answer For Free