Question
Vaughn Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp
Vaughn Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $ 9 from an outside vendor. Division A needs 10,600 lamps for the coming year. Division B has the capacity to manufacture 51,600 lamps annually. Sales to outside customers are estimated at 41,000 lamps for the next year. Reading lamps are sold at $ 11 each. Variable costs are $ 7 per lamp and include $ 1 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $ 76,600. Consider the following independent situations.
(a)
What should be the minimum transfer price accepted by Division B for the 10,600 lamps and the maximum transfer price paid by Division A?
Minimum transfer price accepted by Division B | $ per unit | |
Maximum transfer price paid by Division A | $ per unit |
(b)
Suppose Division B could use the excess capacity to produce and sell externally 15,900 units of a new product at a price of $ 7 per unit. The variable cost for this new product is $ 5 per unit. What should be the minimum transfer price accepted by Division B for the 10,600 lamps and the maximum transfer price paid by Division A?
Minimum transfer price accepted by Division B | $ per unit | |
Maximum transfer price paid by Division A | $ per unit |
(c)
If Division A needs 16,960 lamps instead of 10,600 during the next year, what should be the minimum transfer price accepted by Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
Minimum transfer price accepted by Division B | $ per unit | |
Maximum transfer price paid by Division A | $ per unit |
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