Pilgrim Logistics operates a network of delivery vans. Pilgrim allows its decentralized units (divisions) to “rent” vans to another Pilgrim division. Commercial Division has leased some of its idle vans to Retail Division for $450 per month. Recently, Commercial obtained a new contract with a local distribution center, which will increase its load sufficiently so that the idle vans are more valuable to it. Commercial has told Retail that the rental price will increase to $620 per month. Retail can lease vans for $510 per month from an outside company but would rather use the vans from Commercial. If Retail Division continues to use the vans from Commercial, Commercial will have to rent other vans for $600 per month. (The difference in rental prices occurs because Commercial Division requires larger vans than does Retail Division.)

Required

Recommend a transfer price and explain your reasons for choosing that price.