Transfer Pricing

Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of

budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it

purchases a basic dresser from an outside supplier for $$50.$ The manager of the Furniture Division has approached the manager of the

Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $$29.$

While the Furniture Division has been operating at capacity $(50,000$ dressers per year$)$ and selling them for $$50$ each, it expects to

produce and sell only $40,000$ dressers for $$50$ each next year. The Furniture Division incurs variable costs of $$14$ per dresser.

The Motel Division needs $10,000$ dressers per year; the Furniture Division can make up to $50,000$ dressers per year. The company policy is

that all transfer prices are negotiated by the divisions involved.

Required:

What is the maximum transfer price?

$

Which division sets it$?$

What is the minimum transfer price?

$