Section X manufactures a product used by many manufacturers. Here is the data on sales and product
Question:
Section X manufactures a product used by many manufacturers. Here is the data on sales and product costs.
Selling price per unit in the middle market: $77 Variable cost per unit: $32 Fixed cost per unit (based on production capacity): $4 Maximum production capacity in units (per year): 30,000 units
The company has just established a new Y section that could use this product in one of its products. This section will need 8,000 units per year. Another manufacturer offers it a price of $75 per unit.
Assuming that Section X currently manufactures and sells 28,000 units per year to outside customers in the middle market, and that the unit variable cost incurred by X remains unchanged if sold to Y, the transfer price range in the framework within which the heads of the two sections could agree lies between:
a- a minimum price of $65.75 and a maximum price of $57
b- a minimum price of $65.75 and a maximum price of $77
c- No answer fits
d- a minimum price of $75 and a maximum price of $77
e- a minimum price of $32 and a maximum price of $75