Department A uses a certain product as a component in making another product. Department B is currently making and selling that item for $50. Its variable costs total $25. Its fixed costs are $15. Department A is paying $46 from an outside supplier.
If you were the manager of Department A, how much would you consider being a fair transfer price for you to pay Department B?
Same question, but you are the manager of Department B?
Refer to question related to Department B above. Would your answer(s) change if I said Department B is selling everything they make at $50 and they have no excess capacity?