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 $$40.$ The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $$29.$ The Furniture Division can sell all of the dressers it makes to outside companies for $$40.$ The Motel Division needs $10,000$ dressers per year; the Furniture Division can make up to $50,000$ dressers per year. Also, assume that 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$?$

Motel Division $v$

What is the minimum transfer price?

$

Which division sets it$?$

Furniture Division grad

Conceptual Connection: If the transfer takes place, what will be the transfer price?

$

Does it matter whether or not the transfer takes place?