Martell Corporation makes power tools. The Power division makes a battery that the Small Tools division needs
Question:
Martell Corporation makes power tools. The Power division makes a battery that the Small Tools division needs for a new product. The Power division’s variable cost of manufacturing the component is $12 per unit. The component is also available on the open market at a price of $16 per unit. The Small Tools division needs 60,000 motors per year.
Required
a. If the Power Division has adequate excess capacity to supply the 60,000 motors, what is the minimum transfer price?
b. If the Power Division has adequate excess capacity to supply the 60,000 motors, what is the range of prices that is likely to be acceptable to both the Power division and the Small Tools division?
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