Question
XYZ Co. has two divisions, A and B. Division A has an annual capacity of 2,000 units for producing part 3X34Y. Currently, Division A has
XYZ Co. has two divisions, A and B. Division A has an annual capacity of 2,000 units for producing part 3X34Y. Currently, Division A has an idle capacity of 200 units. The variable cost per unit for Division A is $4/unit and total fixed costs are $20,000. The selling price to the outside for part 3X34Y is $8/unit. Division B can use part 3X34Y to make another product for the company. Division B can purchase the part from the outside for $7/unit, and annual sales of Division Bs product is 500 units. Compute the range of possible transfer prices for part 3X34Y.
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