Business, 13.05.2021 01:00 kenishawilkinsoy4mgw

You are the head of the Beijing Division of Ming Xi Corporation. Your division is evaluated as a profit center. You are currently considering two possible alternatives for the use of your production and selling facilities. Option 1 is to buy 25,000 units of a proprietary product, Alpha, from the Shanghai Division of your company, spend an extra $20 per unit in variable costs to process it further into a new product called Beta and sell 25,000 units of Beta for $80 per unit. Option 2 is to make 10,000 units of a product, Gamma, that uses material bought from outside suppliers, and sell Gamma for a contribution of $100 per unit. The fixed costs for the Beijing Division are expected to be the same across the two options. What is the maximum transfer price per unit of Alpha that you would be willing to pay the Shanghai division?

(Hint: At what transfer price will Beijing division make the same income under the two alternatives?)

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