Task 4 (10 marks)
Crede Inc. has two divisions: Division A makes and sells studentdesks and Division B
manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. DivisionA can purchase reading lamps at
a cost of $10 from an outside vendor. Division A needs 10,000lamps for the coming year.
Division B has the capacity to manufacture 50,000 lampsannually. Sales to outside customers are
estimated at 40,000 lamps for the next year. Reading lamps aresold at $12 each. Variable costs
are $7 per lamp and include $1 of variable sales costs that arenot incurred if lamps are sold
internally to Division A. The total amount of fi xed costs forDivision B is $80,000.
Required: Consider the following independentsituations:
1. What should be the minimum transfer price accepted byDivision B for the 10,000 lamps and
the maximum transfer price paid by Division A? Justify youranswer.
2. Suppose Division B could use the excess capacity to produceand sell externally 15,000
units of a new product at a price of $7 per unit. The variablecost for this new product is $5
per unit. What should be the minimum transfer price accepted byDivision B for the 10,000
lamps and the maximum transfer price paid by Division A? Justifyyour answer.
3. If Division A needs 15,000 lamps instead of 10,000 during thenext year, what should be the
minimum transfer price accepted by Division B and the maximumtransfer price paid by
Division A? Justify your answer.
GB519/MADM/3T2015/MIR/SK Page 4 of 4
Part B: Critical reflection (approximately 1,000words)
You had to practically apply the decision making models andtools you have learned about
throughout the subject. Reflect on your experience in completingthe various assessments in this
course. What major learning on measurement and decision makingcan you apply in practice as a
manager in your organisation?
The list below provides some questions you may wish to considerin your critical reflection. These
are suggestions only. You may address issues that are not onthis list.
1. Has what you have learned in this subject created anincreased awareness of the
importance of decision making as a management activity? Why orwhy not?
2. Which model or tool most influenced you as you worked yourway through the subject?
Why?
3. How critical do you believe the quality of decision making isto an organisation? Why?
4. Which of the models and tools would you use as a manager?Why?
