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 $ 9.73 from an outside vendor. Division A needs 10,600 lamps for the coming year.
Division B has the capacity to manufacture 50,800 lamps annually. Sales to outside customers are estimated at 40,200 lamps for the next year. Reading lamps are sold at $ 12.34 each. Variable costs are $ 7.00 per lamp and include $ 1.04 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 $ 77,300 .
Consider the following independent situations.
Suppose Division B could use the excess capacity to produce and sell externally 19,600 units of a new product at a price of $ 7.67 per unit. The variable cost for this new product is $ 6.02 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?
What would be the minimum transfer price per unit accepted by Divison B?