Reference no: EM132801874

Question - The Batool Division of Alisha Company makes fidget spinners which can either be sold to outside customers or transferred to the Hamza Division of Alisha Company. Last month the Hamza Division bought all 4,000 of its fidget spinners from the Batool Division for Rs.42 each. The following data are available from last month's operations for the Batool Division:

Capacity: 12,000 fidget spinners

Selling price per fidget spinner to outside customers: Rs.45

Variable cost per fidget spinner when sold to outside customers : Rs.23

If the Batool Division sells fidget spinners to the Hamza Division, Batool can avoid Rs.2 per fidget spinner in sales commissions. An outside supplier has offered to supply fidget spinners to the Hamza Division for Rs.41 each.

(a) Assume that the Batool Division has ample idle capacity to meet the demand of the Hamza Division. What should be the lowest acceptable transfer price from the perspective of the Batool Division?

(b) Assume that Batool can sell 9,000 fidget spinners each month to outside consumers, what should be the lowest acceptable transfer price from the perspective of the Batool Division in this situation?