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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 $30/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 $30/unit Variable costs per unit SlG/unit Fixed costs per unit (based on capacity) SQ/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. Ifthe Valve division has enough idle capacity to handle all of the Pump division's needs, what is the acceptable range for the transfer price between the two divisions? Lower end (Seller) : Upper end (Buyer)
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