“Transfer Pricing Problem  TEB, Inc., which manufactures video games, consists of two
divisions, each operating as a profit center. Division A makes a component that
is needed by Division B; however, if the price from Division A is too high,
Division B has indicated it would purchase the component from an outside supplier.
Additional information related to the divisions is:

Division Bs annual needs for component 10,000 units
Division As variable cost per unit $150
Division As annual fixed cost $1,500,000
Price per unit from outside supplier $160

Answer the following independent questions. To explain
independent, when answering requirement 2, utilize the given information above
and the information in requirement 2 and ignore any information in requirement
1. When answering requirement 3, utilize the given information above and the
information in requirement 3 and ignore the information in requirements 1 and
2.

Required (be sure to number the parts 1, 2, and 3 in your
solution, to get grade credit):

1. Assume Division A has excess capacity and cannot use the
capacity to sell components to outsiders. Also assume the decision has been
made by management that Division B must purchase from Division A. What is the
most logical minimum and maximum acceptable transfer price? Briefly explain why
your minimum is your minimum and your maximum is your maximum.

2. Assume Division A has excess capacity and cannot use the
capacity to sell components to outsiders. Also assume Division A can cut its
fixed costs by $200,000 if it does not sell to Division B. For the benefit of
the company as a whole, should Division B buy the parts internally or
externally? Provide detailed, labeled computations that show how much money
will be saved by utilizing your suggested solution.

3. Assume Division A can sell components to outsiders for
$155 each running at 100% of capacity. For the benefit of the company as a
whole, should Division B buy the parts internally or externally? Provide
detailed, labeled computations that show how much money will be saved by
utilizing your suggested solution.

Transfer Pricing Problem TEB, Inc., which manufactures video games, consists of two
divisions, each operating as a profit center. Division A makes a component that
is needed by Division B; however, if the price from Division A is too high,
Division B has indicated it would purchase the component from an outside supplier.
Additional information related to the divisions is: Division Bs annual needs for component 10,000 units Division As variable cost per unit $150 Division As annual fixed cost $1,500,000 Price per unit from outside supplier $160 Answer the following independent questions. To explain
independent, when answering requirement 2, utilize the given information above
and the information in requirement 2 and ignore any information in requirement
1. When answering requirement 3, utilize the given information above and the
information in requirement 3 and ignore the information in requirements 1 and
2. Required (be sure to number the parts 1, 2, and 3 in your
solution, to get grade credit): 1. Assume Division A has excess capacity and cannot use the
capacity to sell components to outsiders. Also assume the decision has been
made by management that Division B must purchase from Division A. What is the
most logical minimum and maximum acceptable transfer price? Briefly explain why
your minimum is your minimum and your maximum is your maximum. 2. Assume Division A has excess capacity and cannot use the
capacity to sell components to outsiders. Also assume Division A can cut its
fixed costs by $200,000 if it does not sell to Division B. For the benefit of
the company as a whole, should Division B buy the parts internally or
externally? Provide detailed, labeled computations that show how much money
will be saved by utilizing your suggested solution. 3. Assume Division A can sell components to outsiders for
$155 each running at 100% of capacity. For the benefit of the company as a
whole, should Division B buy the parts internally or externally? Provide
detailed, labeled computations that show how much money will be saved by
utilizing your suggested solution. “