The Sentry Parts Division of Camden Company plans to set up a facility with the capacity to make 10,000 units annually of an electronic computer part. The avoidable cost of making the part is as follows.

Required
a. Assume that Camden's Norwood Division is currently purchasing 6,000 of the electronic parts each year from an outside supplier at a market price of $50. What would be the financial consequence to Camden if the Sentry Parts Division makes the part and sells it to the Norwood Division? What range of transfer prices would increase the financial performance of both divisions?
b. Suppose that the Norwood Division increases production so that it could use 10,000 units of the part made by the Sentry Parts Division. How would the change in volume affect the range of transfer prices that would financially benefit both divisions?

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Total Cost per Unit Costs Variable cost Fixed cost $200,000 $30 8 (at capacity)