EXERCISE $11$A$-1$ Transfer Pricing Basics $[$LO$6]$

Collyer Products inc. has a Valve Division that manufactures and sells a standard valve as follows:

Capocity in unts.

Seling price to atside artaners on the intermolite maket.

mono

Varible costs pa unt

Fred coots per unt $($based an ceprocty$)$

$55$

$59$

is

The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump

Division is currently purchasing $10,000$ valves per yeat from an overseas suppliet at a cost of $$14$ per valve.

Required

Assume that the Valve Division has ample idle capacity to handle afl of the Purnp Division's needs. What is

the acceptable range, If any, for the transler price between the two divisions?

Assume that the Valve Division is selling all that it can produce to outside customers on the intermediate

market. What is the acceptable range, if any, for the transfer price between the two divisions?

Assume again that the Valve Division is selling all that it can produce to outside customers on the

intermediate market. Also assume that $$2$ in variable expenses can be avoided on transfers within the

company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between

the two divisions?

Assume the Pump Division needs $20,000$ special high$-$pressure valves per year. The Valve Division's

variable costs to manufacture and ship the special valve would be $$10$ per unit. To produce these special

valves, the Valve Division would have to reduce its production and sales of regular valves from $100,000$

units per year to $70,000$ units per year. As far as the Valve Division is concerned, what is the lowest

acceptable transfer price?