Northern Co. has recently opened a new division (Dishwasher Division). The new division needs a special pump as a component part of one of their dishawasher models. They can purchase these pumps from an outside supplier for $18 each. At their current volume, they need 100,000 pumps per year.

Northern Co.'s Pump Division also makes and sells these pumps. They have a capacity of 600,000 pumps per year and are currently selling 550,000 pumps to outside customers for $20 each. Since they have some excess capacity, management of Northern Co is considering asking the new Dishwasher Division to purchase their pumps from the Pump Division. The Pump Division would be able to avoid all variable selling costs on any sales to the Dishwasher Division. Capacity could not be increased.

Both divisions are operated as profit centers.

The Pump Division's cost per pump, based on their normal volume of 550,000 pumps per year:

	Variable costs:
	Direct Materials	$ 6.00
	Direct Labor	$ 3.00
	MOH	$ 2.00
	Selling	$ 1.00
	Fixed costs	$ 3.00
	Total cost	$ 15.00

a.) By how much, in total, will Northern Co. be better or worse off (overall) if the pumps needed by the Dishwasher Division are made by the Pump Division?

b.) What's the maximum price (per unit) the Dishwasher Division would want to pay the Pump Division?

c.) What's the minimum price (per unit) the Pump Division would want to charge the Dishwasher Division?

d.) Which transfer price would the management of Northern Co prefer?

i.The maximum price as determined by the Dishwasher Division

ii.The minimum price as determined by the Pump Division

iii.The management of Northern Co would not care either way.