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Gutierrez Company makes various electronic products. The company
is divided into a number of autonomous divisions that can either sell to
internal units or sell externally. All divisions are located in buildings
on the same piece of property. The Board Division has offered the
Chip Division $21 per unit to supply it with chips for 40,000 boards. It
has been purchasing these chips for $22 per unit from outside
suppliers. The Chip Division receives $22.50 per unit for sales made to
outside customers on this type of chip. The variable cost of chips sold
externally by the Chip Division is $14.50. It estimates that it will save
$4.50 per chip of selling expenses on units sold internally to the Board
Division. The Chip Division has no excess capacity.
Instructions
1. Calculate the minimum transfer price that the Chip Division
should accept. Discuss whether it is in the Chip Division's best interest
to accept the offer.
2. Suppose that the Chip Division decides to reject the offer. What
are the financial implications for each division, and for the company
as a whole, of this decision?
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ACC 560 Week 5 Quiz 3 (Chapters 5 and 6)
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ACC 560 Week 5 Quiz 3 (Chapters 5 and 6)
Question 1