Question
Indigo Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp
Indigo Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $ 10 from an outside vendor. Division A needs 12,000 lamps for the coming year. Division B has the capacity to manufacture 60,000 lamps annually. Sales to outside customers are estimated at 48,000 lamps for the next year. Reading lamps are sold at $ 12 each. Variable costs are $ 7 per lamp and include $ 2 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $ 96,000. If Division A needs 15,000 lamps instead of 12,000 during the next year, what should be the minimum transfer price accepted by Division B and the maximum transfer price paid by Division A?
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