Sako Company's Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:
Selling price per unit on the intermediate market $136
Variable costs per unit $118
Fixed costs per unit (base on capacity) $8
Capacity in units 25,000
Sako Company has a Hi-Fi Divison that could use this speaker in one of its products. The Hi-Fi Division will need 5,000 speakers per year. It has received a quote of $133 per speaker from another manufacturer. Sako Company evaluates division managers on the bass of divisonal profits.
Required:
1. Assume the Audio Division sells only 20,000 speakers per year to outside customers.
a. From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi-Fi Division?
