BM1915

NAME: DATE: SCORE:

ACTIVITY

George, Inc. has a Valve Division that manufactures and sells a standard valve:

Capacity in units 100,000

Selling price to outside customers P1,500
Variable costs per unit 800
Fixed costs per unit (based on capacity) 450

The company has a Pump Division that could use this valve in one of its pumps. The Pump Division is currently
purchasing 10,000 valves per year from an outside supplier at a cost of P1,450 per valve.

Required (7 items x 5 points):

1. Assume that the Valve Division has enough excess capacity to handle all the Pump Division’s needs.
What is the minimum price that the Valve Division is willing to accept?
2. From the point of view of the whole company, should the transfer take place? Why or why not?
3. Assume that the Valve Division is selling all the valves it can produce to outside customers. What is
the minimum price that the Valve Division is willing to accept?
4. From the point of view of the whole company, should the transfer take place? Why or why not?
5. Assume that the Valve Division is selling all the valves it can produce to outside customers. Also
assume that P150 in variable expenses can be avoided on transfers within the company, due to
reduced selling costs. What is the minimum price that the Valve Division is willing to accept?
6. From the point of view of the whole company, should the transfer take place? Why or why not?

Refer to the original data above. Assume the Pump Division needs 20,000 special high-pressure
valves per year. The Valve Division’s variable costs to manufacture and ship the special valve would
be P1,000 per unit. To produce these special valves, the Valve Division would have to reduce its
production and sales of regular valves from 100,000 units per year to 70,000 units per year.

7. As far as the Valve Division is concerned, what is the minimum price it is willing to accept?

Rubric for problem solving:

Performance Indicators Points
Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

Rubric for short answer:

Criteria Performance Indicators Points
Content Provided pieces of evidence, 3
supporting details, and factual
scenarios
Organization Expressed the points in a clear and 2
of ideas logical arrangement of ideas
TOTAL 5

10 Activity 1 *Property of STI

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