Question: Comm Devices (CD) is a division of Worldwide Communications, Inc. CD produces pagers and other personal communication devices. These devices are sold to other Worldwide divisions, as well as to other communication companies. CD was recently approached by the manager of the Personal Communications Division regarding a request to make a special pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that CD produce 10,700 units of this special pager. The following facts are available regarding the Comm Devices Division.
Selling price of standard pager $97
Variable cost of standard pager $52
Additional variable cost of special pager $33
For each of the following independent situations, calculate the minimum transfer price, and determine whether the Personal Communications Division should accept or reject the offer.
(a) The Personal Communications Division has offered to pay the CD Division $108 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 8,700 pagers to existing customers in order to meet the request of the Personal Communications Division. (Round answer to 2 decimal places, e.g. 12.55.)
What is the minimum transfer price?
Should personal communications division accept or reject the offer?
(b) The Personal Communications Division has offered to pay the CD Division $150 per pager. The CD Division has no available capacity. The CD Division would have to forgo sales of 14,714 pagers to existing customers in order to meet the request of the Personal Communications Division. (Round answer to 0 decimal places, e.g. 125.)
What is the minimum transfer price?
Should personal communications division accept or reject the offer?
(c) The Personal Communications Division has offered to pay the CD Division $103 per pager. The CD Division has available capacity.
What is the minimum transfer price?
Should personal communications division accept or reject the offer?