Question
The Upstream Division of CDC makes an intermediate product at a variable cost of $40 per unit, but the cost is $12 less per unit
The Upstream Division of CDC makes an intermediate product at a variable cost of $40 per unit, but the cost is $12 less per unit on internal sales, due to reduced packaging requirements. The Division can sell everything it can produce to the outside market for $60 per unit ($60 is the market price for the intermediate product). The Downstream Division can use the intermediate product in its own manufacturing process. Excluding the cost to the Downstream Division of obtaining this intermediate product, its variable production cost is $55 per unit, and it sells its final product for $108 per unit. The Downstream Division can buy the intermediate product from an independent supplier for the market price of $60 per unit. What is the range of transfer prices at which the managers of both divisions would be willing to transfer product?
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