Question
Ambrose Corporation has two division: an electric division and an appliance division. One of the Electric Divisions products is an electric motor. The variable cost
Ambrose Corporation has two division: an electric division and an appliance division. One of the Electric Divisions products is an electric motor. The variable cost to produce the electric motor is $75. The Electric Division sells the electric motor externally for $140 each. The Appliance Division is planning to produce a new product that would use an electric motor, and wants to buy 1,000 electric motors from the Electric Division. REQUIRED: 1. The Electric Division has the excess capacity to make the 1,000 units. What is the minimum transfer price the Electric division would be willing to accept? What is the maximum transfer price the Appliance Division would be willing to pay? 2. The Electric Division is now selling all its electric motors at $140 each, and has no excess capacity. What is the minimum transfer price the Electric Division would be willing to accept? What is the maximum transfer price the Appliance Division would be willing to pay?
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