The Bat Division of Baseball Company has just revised its actual cost data for 2014. Bat Division transfers goods to the Sport Division. Sport Division can buy the same goods in the open market for $122 each and sell at $135. Bats new cost data are as follows (in $) (10 m)

Direct materials 40

Direct labor 30

Variable overhead 10

Fixed overhead 16

Variable selling expenses 6

Fixed selling and administrative expenses 12

Total costs 114

Desired return 20

Sales price 134

Current production is 200,000 units, and the Bat Division has a capacity of 300,000 units.

Required:

a) What is the lowest price the Bat Division should charge for the internal transfers of its goods? What is the highest price the Sport Division should pay for the units?

b) Should the Bat division agree for an internal transfer price of $90? If yes, what would be the contribution for both the Divisions and profit for Baseball Company as a whole?

c) If the Bat division operates at full capacity what should be the sales price, if the mark-up has to be 20%.

d) Give the primary reason why the Bat Division should reduce its price.