Nelco Company's Electrical Division produces a high quality transformer. Sales and cost data on the transformer follow: $80 $50 Selling price per unit on the outside market Variable costs per unit Fixed costs per unit (based on capacity) Capacity in units $12 75,000 Nelco Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 20,000 transformers each year from another company at a cost of $78 per transformer. The supplier gives the Motor Divsion a 10% discount. Required: 1. Assume that the Electrical Division is now selling 75,000 transformers each year to outside customers. Will a transfer take place? a) Calculate the minimum and maximum transfer prices. (3 marks) Minimum transfer price from the perspective of the Maximum transfer price from the perspective of the b) Are the managers of the two divisions likely to voluntarily agree to a transfer price for 20,000 transformers each year? (1 mark) Transfer: 2. Now assume that the Electrical Division is currently selling 2,000 transformers to outside customers and there are $1 in variable cost savings on internal sales a) Calculate the minimum and maximum transfer prices. (3 marks) Supporting Calcuations Minimum transfer price Maximum transfer price b) Are the managers of the two divisions likely to voluntarily agree to a transfer price for 20,000 transformers each year? (1 mark) Transfer