The procurement division of Sea Monkeys Inc, purchases and processes salt, water conditioner, and brine shrimp eggs, and packages the correct quantities for sea monkeys into a plain silver packet. The finishing division of Sea Monkeys Inc takes plain silver packets with the mix for sea monkeys purchased from the procurement division and/or an external supplier and adds an additional layer of packaging with the companys branding and instructions for customers, and prepares them for shipment. Both divisions are fully autonomous and seek to maximize their own profit.

The procurement division produces and sells 600,000 sea monkey packets per year, its maximum capacity (this is the capacity used for determining the predetermined overhead rate). The per unit costs associated with one silver packet are as follows:

Direct materials

$2.50

Direct labor

$1.00

Variable factory overhead

$0.50

Fixed factory overhead

$0.75

Total

$4.75

What is the range of transfer prices such that the procurement and finishing divisions should be mutually willing to transact for the 600,000 packets?

A new customer has just has offered the procurement division $7 per sea monkey packet for the upcoming year for its entire production of 600,000 packets because a contract with an existing supplier fell through. All other prices and costs for the upcoming year will be the same as they are now. What is the net benefit or cost to the company overall if the procurement division accepts this offer?

Ignore the new information in the previous question. The procurement division is considering expanding its capacity in order to be able to produce an additional 200,000 units. The variable costs associated with these additional 200,000 units would be higher because the procurement division would need to use a second supplier and workers would need to be paid overtime for the additional work. The per unit variable costs for these 200,000 units would be:

Direct materials

$2.80

Direct labor

$1.20

Variable factory overhead

$0.60

In addition, the procurement division would have to rent additional factory space that would cost $255,000 per year. If procurement provides finishing with 600,000 units, finishing is willing to pay $5.50 per unit. What is the minimum amount per unit that procurement would be willing to accept to provide finishing with 800,000 units for the year instead?

Note: The following two questions are also based on information in this question. The procurement division of Sea Monkeys Inc, purchases and processes salt, water conditioner, and brine shrimp eggs, and packages the correct quantities for sea monkeys into a plain silver packet. The finishing division of Sea Monkeys Inc takes plain silver packets with the mix for sea monkeys - purchased from the procurement division and/or an external supplier - and adds an additional layer of packaging with the company's branding and instructions for customers, and prepares them for shipment. Both divisions are fully autonomous and seek to maximize their own profit. The procurement division produces and sells 600,000 sea monkey packets per year, its maximum capacity (this is the capacity used for determining the predetermined overhead rate). The per unit costs associated with one silver packet are as follows: Direct materials $2.50 Direct labor $1.00 $0.50 Variable factory overhead $0.75 Fixed factory overhead $4.75 Total The finishing division currently purchases all 600,000 sea monkey packets produced per year by the procurement division, as well as 400,000 additional packets from an external supplier - these packets are equivalent to those produced in-house. The procurement division could sell any number of its packets to an external customer at a price of $5 if it so desired. The external supplier (who would happily supply any number of packets to the finishing division) charges the finishing division