The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month's operations for the Vega Division:

Capacity 12,000 wheels
Selling price/wheel to outside customer $45
Variable costs/wheel sold to outside customer $30

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $41 each.

Suppose that Vega can sell 10,000 wheels each month to outside consumers, so transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the Vega Division?

Question

The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for $42 each. The following data are available from last month's operations for the Vega Division:

Capacity	12,000 wheels
Selling price/wheel to outside customer	$45
Variable costs/wheel sold to outside customer	$30

If the Vega Division sells wheels to the Walsh Division, Vega can avoid $2 per wheel in sales commissions.  An outside supplier has offered to supply wheels to the Walsh Division for $41 each.

Suppose that Vega can sell 10,000 wheels each month to outside consumers, so transfers to the Walsh Division cut into outside sales. What should be the lowest acceptable transfer price from the perspective of the Vega Division?

BlackTom AI · Accepted Answer

When outside demand is 10,000 and capacity is 12,000, only part of the 4,000-wheel internal transfer will displace outside sales; the rest uses idle capacity. This creates a per-unit opportunity cost that must be included in the minimum transfer price.

Relevant concepts:
- Opportunity cost: lost contribution margin when an internal transfer displaces an external sale.
- Avoidable (differential) cost: costs saved when selling internally (here, $2 sales commission per wheel).
- Minimum transfer price = incremental cost to produce for internal sale + average opportunity cost per transferred unit.

Step-by-step reasoning and calculations:
1. Capacity and demands:
   - Capacity = 12,000 wheels.
   - Outside demand = 10,000 wheels.
   - Walsh demand (transfer) = 4,000 wheels.
   If Vega transfers 4,000, the firm can produce 12,000 total, so outside sales will fall from 10,000 to 8,000. Thus only 2,000 of the 4,000 transfers actually displace outside sales; the other 2,000 use idle capacity.

2. Lost contribution on each displaced unit:
   - Outside selling price = $45.
   - Reported variable cost per wheel (to outside customer) = $30. The problem states that selling internally avoids $2 of sales commissions, implying the $30 includes those commissions; thus the contribution lost per displaced outside sale = 45 − 30 = $15.

3. Average opportunity cost per transferred wheel:
   - Number displaced = 2,000; number transferred = 4,000.
   - Average lost contribution per transferred wheel = (2,000 × $15) / 4,000 = $7.50.

4. Incremental (avoidable) production cost per internal unit:
   - Variable cost reported = $30, but selling internally avoids $2 commission, so incremental cost when sold internally = 30 − 2 = $28.

5. Lowest acceptable transfer price:
   - Minimum price = incremental internal cost + average opportunity cost
   - = $28 + $7.50 = $35.50

Why the correct answer is correct:
- It covers the actual incremental cost Vega incurs when selling internally ($28) and compensates for the averaged forgone contribution from the portion of transfers that displace outside sales ($7.50). Any lower price would reduce Vega’s overall profit.

Why other choices are incorrect:
- $28 ignores the opportunity cost of displaced outside sales.
- $41 is the outside supplier’s offer to Walsh (irrelevant to Vega’s minimum); it exceeds Vega’s minimum but isn’t Vega’s lowest acceptable price.
- $31.75 and “none of the others” do not correctly account for the capacity-driven split between displaced and idle-capacity units.

Conclusion: The lowest acceptable transfer price from Vega’s perspective is $35.50, which matches the provided answer.

类似问题

A transfer pricing structure that considers the opportunity costs of selling to internal rather than external customers uses ________.

A transfer pricing arrangement that uses the price that would be charged to an external customer is a ________.

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