Elite Inc.has many divisions that are evaluated on the basis of return on investment (ROI).One division, Beta, makes boxes.A second division, Lambda, makes chocolates and needs 90,000 boxes per year.Beta incurs the following costs for one box:

Beta has the capacity to make 720,000 boxes per year.Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives).
- Assume that Elite Inc.allows division managers to negotiate transfer price.Beta is producing 720,000 boxes.If Beta and Lambda agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

A) $2.00; Beta
B) $1.35; Beta
C) $1.48; Lambda
D) $1.35; Lambda
E) $1.80; Lambda

Question

Elite Inc.has many divisions that are evaluated on the basis of return on investment (ROI).One division, Beta, makes boxes.A second division, Lambda, makes chocolates and needs 90,000 boxes per year.Beta incurs the following costs for one box:

Beta has the capacity to make 720,000 boxes per year.Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives).
- Assume that Elite Inc.allows division managers to negotiate transfer price.Beta is producing 720,000 boxes.If Beta and Lambda agree to transfer boxes, what is the floor of the bargaining range and which division sets it?
 
A) $2.00; Beta 
B) $1.35; Beta 
C) $1.48; Lambda 
D) $1.35; Lambda 
E) $1.80; Lambda

Quizplus · Accepted Answer

As the seller, Beta sets the minimum transfer price (floor).Since Beta is producing at capacity and can sell all that it produces at the market price, the floor is $2.00.

Elite Inchas Many Divisions That Are Evaluated on the Basis of of Return