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Transfer Price Management of the John Deere Tractor Company would like the Drivetrain Division to transfer 10,000 units of its final product to the Tractor,

Transfer Price

Management of the John Deere Tractor Company would like the Drivetrain Division to transfer 10,000 units of its final product to the Tractor, Cab, and Assembly Operations Division for $5,000. The Drivetrain Division sells the product to customers for $7000 per unit. The Drivetrain Division's variable cost per unit is $3500 and its fixed cost per unit is $1000.

  1. If the Drivetrain Division is currently operating at full capacity, what is the minimum transfer price the Drivetrain Division should accept?
  2. If the Drivetrain Division has 10,000 units of available capacity, what is the minimum transfer price the Drivetrain Division should accept?

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