TRANSFER PRICING ANALYSIS

CEG Ski Corporation has two main business segments: Ski boot production and wakeboard production. The wakeboard production division is currently considering purchasing the ski boots from an outside supplier for $45 per pair; however, they would like to see if they can negotiate a lower price with ski boot production line.

The ski boot division sells boots at a price of $65 per pair and incurs variable costs of $30 per pair. Their total factory capacity is 5,000 pairs.

1. If the ski boot division is currently producing 5,000 pairs for outside customers, would the two divisions be able to negotiate a price that would be agreeable to both parties? Why or why not? Show the acceptable price range, if any.

2. If the ski boot division is currently producing 4,000 pairs and the wakeboard division would like to purchase 1,000 pairs, would the two divisions be able to negotiate a price that would be agreeable to both divisions? Why or why not? Show the acceptable price range, if any.
3. If the ski boot division is currently producing 4,500 pairs and the wakeboard division would like to purchase 1,000 pairs, would the two divisions be able to negotiate a price that would be agreeable to both divisions? Why or why not? Show the acceptable price range, if any.