FOR EACH OF THE FOLLOWING YOU

HAVE TO WRITE A PROOF

Using the following data, to solve point 1 through 8:
Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products.
Sales and cost data on the speaker follow:
Selling price per unit on the intermediate market $60
Variable cost per unit $42
Fixed costs per unit (based on capacity) $8
Capacity in units 25,000
Sako Company has a Hi-Fi Division that could use this speaker in one of its products. The Hi-Fi Division will
need 5,000 speakers per year. It has received a quote of $57 per speaker from another manufacturer. Sako
Company evaluates division managers on the basis of divisional profits.

1. Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. From
the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to
the Hi-Fi Division?
a. $42 b. $60 c. $57 d. None of the above

2. Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. From
the standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers
acquired from the Audio Division?
a. $42 b. $60 c. $57 d. None of the above

3. Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. What is
the range of acceptable transfer prices (if any) between the two divisions?
a. Between $42 & $60 b. Between $42 & $57 c. Between $57 & $60 d. No acceptable range

4. Assume the Audio Division is now selling only 20,000 speakers per year to outside customers. From
the standpoint of the entire company, should the transfer take place?
a. Yes b. No

5. Assume the Audio Division is selling all of the speakers it can produce to outside customers. From the
standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the
Hi-Fi Division?
a. $42 b. $60 c. $57 d. None of the above

6. Assume the Audio Division is selling all of the speakers it can produce to outside customers. From the
standpoint of the Hi-Fi Division, what is the highest acceptable transfer price for speakers acquired
from the Audio Division?
a. $42 b. $60 c. $57 d. None of the above

7. Assume the Audio Division is selling all of the speakers it can produce to outside customers. What is
the range of acceptable transfer prices (if any) between the two divisions?
a. Between $42 & $60 b Between $42 & $57 c. Between $57 & $60 d No acceptable range
. .

8. Assume the Audio Division is selling all of the speakers it can produce to outside customers. From the
standpoint of the entire company, should the transfer take place? Why or why not?
a. Yes b. No