Delbert Companys Can Division produces a variety of cans that are used for food processing. Delberts Nut Division buys nuts; de-shells, roasts, and salts them; and places them in can. It sells the cans of roasted nuts to various retailers. The most frequently used can is the 12-ounce size. In the past, the Nut Division has purchased these cans from external suppliers for $0.65 each. The manager of the Nut Division has approached the manager of the Can Division and has offered to buy 200,000 12-ounce cans each year. The Can Division currently is producing at capacity and produces and sells 300,000 12-ounce cans to outside customers for $0.65 each.

1. a) What is the minimum transfer price for the Can Division? What is the maximum range for the Nut Division? Is it important that transfers take place internally? If transfers do take place, what should the transfer price be?

2. b) Now assume that the Can Division incurs selling costs of $0.04 per can that could be avoided if the cans are sold internally. Identify the minimum transfer price for the Can Division and the maximum transfer price for the Nut Division. Should internal transfer cake place? If so, what is the benefit to the firm as a whole?

3. c) Suppose you are the manager of the Can Division. Selling costs of $0.04 per can are avoided if the cans are sold internally. Would you accept an offer of $0.63 from the manager of the other division? How much better off (or worse off) would your division be if this price is accepted?