5. What range would the transfer price fall into if it were negotiated between the two divisions?

Stop—Check!

Kitine Wagon Company has two divisions: the Wheel division is located in the United States, where the tax rate is 20%, and the Assembly division is located in Finland, where the tax rate is 40%. The Wheel division manufactures wheels at a variable cost of $1.50 per wheel, which are transferred to the Assembly division, who uses 4 wheels in each wagon manufactured. In addition to the cost of the wheels, the Assembly division incurs $8 in variable costs per unit to manufacture the wagons.
The Wheel division has annual production of 400,000 wheels, and the Assembly division has annual production of 100,000 wagons. Fixed costs are $100,000 for the Wheel division and $300,000 for the Assembly division. The market price for wheels is $3 per wheel, and market demand is unlimited, but if the Wheel division wants to sell on the outside market, it will incur marketing costs of $50,000 that it would not incur if it transfers the goods to the Assembly department. The selling price of each wagon is $20.