Crede Inc. has two divisions. Division A makes and sells student desks. Division

Question

Crede 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 $10 from an outside vendor. Division A needs 10,000 lamps for the coming year.
  Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are estimated at 40,000 lamps for the next year. Reading lamps are sold at $12 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 $80,000. Consider the following independent situations.

What should be the minimum transfer price accepted by Division B for the 10,000 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 15.25.)

Crede 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 $10 from an outside vendor. Division A needs 10,000 lamps for the coming year. Division B has the capacity to manufacture 50,000 lamps annually. Sales to outside customers are estimated at 40,000 lamps for the next year. Reading lamps are sold at $12 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 $80,000. Consider the following independent situations. What should be the minimum transfer price accepted by Division B for the 10,000 lamps and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 15.25.) Minimum transfer price accepted by Division B$ Maximum transfer price paid by Division A$

Explanation / Answer

Min is $6.00, Max is $10.00

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