Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 21

Transfer Pricing; Decision Making Using the information from requirement 1 of exercise 19-32, assume that division B could sell 10,000 units outside for $215 per unit with variable marketing costs of $10. Should division B sell outside or to division A Explain.
Reference:
Transfer Pricing; Decision Making Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials since division B informed it that the division's selling price for the same materials would increase to $200. Information for division A and division B follows:

Required
1. Will the company benefit if division A purchases outside the company Assume that division B cannot sell its materials to outside buyers.
2. Assume that division B can save $200,000 in fixed costs if it does not manufacture the material for division A. Should division A purchase from the outside market
3. Assume the situation in requirement 1. If the outside market value for the materials drops $20, should division A buy from the outside Explain.