Reference no: EM132528637

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions:

Case                                                         1                                 2                      3                    4

Alpha Division:

Capacity in units                             53,000                    292,000        102,000        200,000

Number of units now being sold to

outside customers                                53,000                 292,000         79,000        200,000

Selling price per unit to outside

customers                                           $96                     $39                  $63             $44

Variable costs per unit                         $60                        $19                   $40          $29

Fixed costs per unit (based on

capacity)                                          $21                         $5                       $20             $5

Beta Division:

Number of units needed annually           10,600                  73,000                       18,000     62,000

Purchase price now being paid to

an outside supplier                             $90                               $36                   $63               -

• Before any purchase discount
• Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.

Required

Question 1: Assume that Beta Division wants Alpha Division to provide it with 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $23 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is the lowest acceptable transfer price from Alpha Division's perspective