Question
Specter Corporation manufactures flip-flops in its Shoe Division. The Shoe Division can sell the flip-flops to the companys Retail Division or externally. For production up
Specter Corporation manufactures flip-flops in its Shoe Division. The Shoe Division can sell the flip-flops to the companys Retail Division or externally. For production up to 100,000 pairs per month, the Shoe Divisions flip-flop line has fixed costs of $500,000 and variable costs of $7 per pair. If production goes beyond 100,000 pairs, there are additional fixed costs of $100,000. Variable costs are $9 per pair on the excess pairs above 100,000. Production capacity is 200,000 pairs per month. Required The Retail Division would like to order 10,000 flip-flops per month from the Shoe Division. What is the minimum transfer price (in dollars per pair) the Shoe Division would possibly accept in each of the following independent scenarios? (The Shoe Division manager seeks to maximize Shoe Division profits in the current period.)
a) The Shoe Division is currently producing and selling 50,000 flip-flops per month to external parties at a price of $25 per pair.
b) The Shoe Division is currently producing and selling 100,000 pairs of flip-flops per month to external parties at a price of $25 per pair.
c) The Shoe Division is currently producing and selling 150,000 pairs of flip-flops per month to external parties at a price of $25 per pair.
d) The Shoe Division is currently producing and selling 200,000 pairs of flip-flops per month to external parties at a price of $25 per pair.
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