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Piping Products, Inc., has a Valve division that manufactures and sells a standard valve: Capacity in units 100,000 units Selling price to outside customers SSO/unit
Piping Products, Inc., has a Valve division that manufactures and sells a standard valve: Capacity in units 100,000 units Selling price to outside customers SSO/unit Variable costs per unit SIG/unit Fixed costs per unit (based on capacity) $9/unit The company has a Pump division that could use this valve in one of its pumps. The Pump division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $29 per valve. From Pump's perspective, it would clearly buy from Valve if the price per unit is less than the price per unit offered by the outside supplier. From Valve's perspective, the transfer price must be greater than the variable cost per unit plus the opportunity cost per unit. The Valve division is selling all of the valves it can produce to outside customers, but $3 in variable expenses could be avoided on transfers within the company due to reduced selling costs. What is the range for the transfer price between the two divisions? Lower end (Seller) : Upper end (Buyer) 1
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