(1 of 3) The Adventure Technology manufactures and sells kayaks. Its finishing division (FD) buys the preformed plastic kayaks from the plastics division (PD) and assembles the finished kayak. The PD, which is operating at capacity, incurs an incremental manufacturing cost of $125 per kayak. The PD can sell all its output to the outside market at a price of $195 per kayak, after incurring a variable marketing and distribution cost of $10 per kayak. If the FD purchases kayaks from outside suppliers at a price of $225 per kayak, it will incur a variable purchasing cost of $16 per kayak. Adventure Technology division managers can act autonomously to maximize their own divisions operating income.

Required:

1. What is the minimum transfer price at which the PD manager would be willing to sell kayaks to the FD?

Group of answer choices

Should not sell at all since it can sell all output on the outside market

$195

$125

185

2. What is the maximum transfer price at which the FD manager would be willing to purchase kayaks from the PD?

Group of answer choices

$125

$241

$225

It should not buy internally

3. Now suppose that the PD can sell only 80% of its output capacity of 10,000 kayaks per month on the open market. Capacity cannot be reduced in the short run. The FD can assemble and sell more than 10,000 kayaks per month.

What are the minimum transfer prices at which the PD manager would be willing to sell up to 10,000 kayaks to the FD?

Group of answer choices

All 10,000 units at $125

All 10,000 units at $195

First 2000 units at $125 and the next 8000 units at $185

First 2000 units at $195 and the next 2000 units at $225