Continental Electronics, Inc., permits its decentralized units to “lease” space to one another. Division X has leased some idle warehouse space to division Y for $1.65 per square foot per month. Recently, division X obtained a new five-year contract, which will increase its production sufficiently so that the warehouse space is more valuable to it. Division X has notified division Y that it will increase the rental price to $5.30 per square foot per month. Division Y can lease space at $3.25 per square foot in another warehouse from an outside company but prefers to stay in the shared facilities. Division Y’s management states that it prefers not to move. If division X cannot use the space now being leased to division Y, it will have to rent other space for $5.00 per square foot per month. (The difference in rental prices occurs because division X requires a more substantial warehouse building than division Y.)

Required As a group, recommend a transfer price and explain your reasons for choosing that price