Question - Alpha International Corporation has two divisions, beta and gamma. Beta produces an electronic component that sells for $77 per unit, with the following costs based on its capacity of 216,700 units:
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Direct materials
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$28.00
|
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Direct labor
|
17.00
|
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Variable overhead
|
3.00
|
|
Fixed overhead
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15.00
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Beta is operating at 73% of normal capacity and gama is purchasing 15,500 units of the same component from an outside supplier for $71 per unit.
Calculate the benefit, if any, to beta in selling to gama 15,500 at the outside supplier's price.
Calculate the lowest price beta would be willing to accept.
If beta is operating at full capacity what would be the lowest transfer that beta division is willing to accept?
Assume that a transfer price of $77 is used between beta and gamma. Calculate the effect on the profits of beta, gamma and Alpha International Corporation.