EXERCISE 12-4 (CONTINUED)

5,000

( )

= $42 + $60 - $42 = $60

b. As before, the Hi-Fi Division would be unwilling to pay more than $57

per speaker.

c. The requirements of the selling and buying divisions in this instance

are incompatible. The selling division must have a price of at least

$60 whereas the buying division will not pay more than $57. An

agreement to transfer the speakers is extremely unlikely.

d. From the standpoint of the entire company, the transfer should not

take place. By transferring a speaker internally, the company gives up

revenue of $60 and saves $57, for a loss of $3.