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Possible Competitive Price Rs.27 Rs.26 Rs.25 Rs.23 Rs.22
Sales Volume if price of Product Z is 9000 7000 5000 2000 0
maintained at Rs.28
Sales Volume if price of product Z is 10,000 10,000 10,000 10,000 10,000
reduced to competitive levels
Required:
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(a) With transfer prices calculated in (1), is Division C better advised to maintain its price at Rs.28 or to
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follow competition in each of the instances above?
(b) With the transfer prices calculated in (2), Division C better advised to maintain its price at Rs.28 or
to follow competition in each of the instances above?
(c) Which decisions are to the best economic interests of the company, other things being equal?
(d) Using the transfer prices calculated in (1), is manager of Division C making a decision contrary to
the overall interests of the company? If so, What is the opportunity loss to the company in each of
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resulting from increases in television advertisement are estimated. The results of this survey are
provided below. (Note that this particular type of advertising can be purchased only in units of Rs.1,
00,000)
Required:
(A) As manager of Division C, how much television advertising would you use if you purchased product
Y at the transfer price calculated in (1).
(B) How much Television advt. would you use if you purchased Product Y at the transfer price,
calculated in (2)
(C) Which is correct from the overall company point?
(D) How much would the company lose in suboptimum profits from using the first transfer price?
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