Sherwin company makes bicycles. Various divisions make components and transfer them to the Dayton division for assembly into final products. The Dayton division can also buy components from external suppliers. The Toledo division makes the wheels and it also sells wheels to external customers. All divisions are profit centers and managers are free to negotiate transfer prices.
Toledo Division
Sales price to external customers $14
Internal transfer price ?
Costs
-Variable cost per wheel $10
-Total fixed costs $320,000
Budget production 64,000 wheels
Dayton Division
Sales price to external customers $170
Costs
-Wheels per bicycle ?
-Other components per bike $85
-Other variable costs per bike $45
Total fixed costs $640,000
Budget production 16,.000 bikes
Fixed costs in both divisions will be unaffected by the transfer of wheels from Toledo to Dayton.
1.Compute the maximum transfer price per wheels the Dayton division would be willing to pay to buy from the Toledo division.
2.Compute the miimu transfer price per wheels at which the Toledo division would be willing to produce and sell wheels to the Dayton division. Assume that Toledo has excess capacity.