Jennings Corporation has a Castings Division that manufactures and sells a standard valve as follows:

Capacity in units		200,000
Selling price to outside customers on the intermediate market		$ 30
Variable costs per unit		$ 10
Fixed costs per unit (based on capacity)		$ 4

The company has a Machine Products Division that could use this casing in the manufacture of one of its pieces of machinery. The Machine Products Division is currently purchasing 20,000 casting per year from an overseas supplier at a cost of $29 per casting.

The following equations are required for this problem:

Transfer price Variable cost per unit + Total contribution margin on lost sales / Number of units transferred

Transfer price Cost of buying from outside supplier

a) Assume that the Casting Division has ample idle capacity to handle all of the Machine Products Divisions needs. What is the acceptable range, if any, for the transfer price between the two divisions?

b) Assume that Casting Division has no idle capacity to handle all of the Machine Products Divisions needs. What is the acceptable range, if any, for the transfer price between the two divisions?