1) Shular Products, Incorporated, has a Valve Division that manufactures and sells a number of products, including a standard valve that could be used by another division, the Division, in one of its products. Data concerning that valve appear below:
Capacity in Units: 69k Selling price to outside customers: $53 Variable cost per unit: $33 Fixed cost per unit, based on capacity: $10
The company has a Pump Division that could use this valve in one of its products. The Pump Division is currently purchasing 8,000 of these valves per year from an overseas supplier at a cost of $47 per valve.
Required:
a. Assume that the Valve Division has enough idle capacity to handle all of the Pump Divisions needs. What is the acceptable range, if any, for the transfer price between the two divisions?
b. Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What is the acceptable range, if any, for the transfer price between the two divisions?