InterGlobal Industries Intelivvai ustries is a diversified corporation with separate operating divisions. Each division's performance is evaluated on the basis of profit and return on investment The Air Comfort Division manufactures and sells air-conditioner units. The coming year's budgeted income statement, which follows, is based upon a sales volume of 15,000 unites. AIR COMFORT DIVISION Budgeted Income Statement (In thousands) Total S6,000 S1,050 Per Unit S400 Manufacturing costs: Compressor Other direct material $70 37 30 450 675 480 S3.210 $2.790 Variable overhead Fixed overhcad 32 S214 S186 Total manufacturingc Gross margin Operating expenses: Variable selling Fixed selling S270 285 38 S75 STIT Total operating expenses S1,125 1,665 Air Comfort's division manager believes sales can be increased if the price of the air-conditioners is reduced. A market research study by an independent firm indicates that a 5 percent reduction in the selling price would increases sales volume l6 percent, or 2,400 units. The division has sufficient production capacity to manage this increased volume with no increase in fixed costs. The Air Comfort Division uses a compressor in its units, which it purchases from an outside supplier at a cost of S70 per compressor. The Air Comfort Division manager has asked the manager of the Compressor Division about selling compressor units to Air Comfort. The Co similar to the unit used by the Air Comfor Division. The specifications of the Air Comfort Division compressor are slightly different, which would reduce the compressor Division's direct material cost by S1.50 per unit. In addition, the Compressor Division would not incur any variable selling costs in the units sold to Air Comfort Division. The manager of the Air Comfort Division wants all of the compressors it uses to come from one supplicr and has offered to pay $50 for each compressor unit. r Division currently manufactures and sells a unit to outside firms that is mpresso The Compressor Division has the capacity to produce 75,000 units. Its budgeted income statement for the coming year, which follows, is based on a sales volume of 64,000 units without considering Air Comfort's proposal.
COMPRESSOR DIVISION Budgeted Income Statement (In thousands) Per Unit Total S6,400 S100 $12 10 $41 Sales revenue... Manufacturing costs: Direct material. $768 512 640 704 2,624 3,776 Variable overhead.. $59 Gross margin. Operating expenses $384 256 448 S1,088 $2,688 $6 Fixed selling. . . $17 $42
What is goal congruence? Is $50 a goal-congruent transfer price? [Refer to your answers Why and why not? At what price range would goal-congruence achieved?