The McNabb Companys Eastern Division has capacity to produce 200,000

widgets annually. The normal selling price is $19 per widget. Fixed costs are $800,000,

and variable costs are $7 per widget. Another division of McNabb Company would like

to buy some widgets from the Eastern Division.

Required:

A) Assume the Eastern Division is operating at 100% of capacity (demand from

current customers exceeds the Eastern Division's production capacity). The

Western Division would like to purchase 10,000 widgets from the Eastern

Division, and $2 of the variable costs incurred by the Eastern Division could be

avoided on each widget transferred. What is the lowest transfer price the Eastern

Division should accept?

B) Assume that the Eastern Division is operating at 80% of capacity. The Western

Division would like to purchase 20,000 widgets. No variable cost would be

avoided on the sale. What is the lowest transfer price the Eastern Division should

accept?

C) Assume the Eastern Division is operating at 95% of capacity. The Western

Division would like to buy 40,000 widgets in an all-or-nothing deal (it is 40,000

or zero). There would be no variable cost savings. What is the lowest transfer

price the Eastern Division could accept to maintain its current profitability?