Grover Corp. is a manufacturing company that produces golf clubs. Birdie is a division of Grover that manufactures putters. Birdie’s putters are used in Grover’s golf club sets and are sold to other golf wholesalers. Cost information per putter follows:

Variable cost ..............$25.00

Full cost ............... 28.00

Market price ............. 42.00

In addition, its capacity data follow:

Capacity per year ............40,000 putters

Current production level ........30,000 putters

Required:

1. Assuming Grover produces 3,000 putters per year; determine the overall benefit of using putters from Birdie instead of purchasing them externally.

2. Determine the maximum price that the production facility would be willing to pay to purchase the putters from Birdie. How is the overall benefit divided between the two divisions if this transfer price is used?

3. Determine the minimum that Birdie will accept as a transfer price. How is the overall benefit divided between the two divisions if this transfer price is used?

4. Determine the mutually beneficial transfer price for the putters.

5. How would your answer change if Birdie were currently operating at capacity?