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The Red River Division of Alto Company produces and sells bags of pottery clay which can either be sold to outside customers or transferred to
The Red River Division of Alto Company produces and sells bags of pottery clay which can either be sold to outside customers or transferred to the White Mountain Division of Alto Company. The following data are available for the last year:
Red River Division: | |||
Production capacity | 30,000 | bags | |
Selling price per bag to outside customers | $ | 30.00 | per bag |
Variable production cost per bag | $ | 21.00 | per bag |
Variable selling cost per bag | $ | 6.00 | per bag |
|
White Mountain Division: | |||
Number of bags needed annually | 10,000 | bags | |
Price per bag paid to an outside supplier | $ | 24.00 | per bag |
|
By selling to the White Mountain Division, the Red River Division will avoid $5.00 per bag in selling costs. What is the maximum transfer price the White Mountain Division should be willing to pay?
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