Karen Owns a Small Company That Has Several Business Units

Essay

Karen owns a small company that has several business units. The main product of this company is jackets sewn with a special insulated lining that can withstand extremely cold temperatures. One of her business units at the company is responsible for the production of the fancy decorative buttons sewn onto the front of this jacket. The button division has the capacity to meet both internal and external demand with an overall production capacity of 15,000 buttons annually. The company manufactured and sold 12,479 of its available units to the external companies. The Jacket Division just lost its main external button supplier and is in need of 8,788 buttons as soon as possible. The Jacket Division has been collecting external bids but has also requested that the Button Division provide a quote prior to making a final decision. The Button Division has produced the following numbers so far (all based upon sales to external customers): The jacket division has been given the following offers from external suppliers
Supplier A: $1.09 per button plus a 2% markup to cover shipping
Supplier B: $1.14 per button plus a $250 total shipping rate
a. What is the minimum acceptable transfer price for their internal purchase from the Button Division? What is the overall price they would need to pay for these buttons?
b. What is the overall price for Supplier A? What is the overall price for Supplier B? Which supplier has created the more appealing offer?
c. Since the jacket division needs these buttons quickly, what option should they select? Would your answer change if Supplier A and Supplier B both waived their shipping charges?