Problem - TEB, Inc., which manufactures video games, consists of two divisions, each operating as a profit center. Division A makes a component that is needed by Division B; however, if the price from Division A is too high, Division B has indicated it would purchase the component from an outside supplier. Additional information related to the divisions is:
Division B's annual needs for component - 10,000 units
Division A's capacity - 40,000 units
Division A's current sales at $170 per unit - 30,000 units
Division As total cost per unit ($140 variable and $10 fixed) - $150
Division A's annual fixed cost - $1,500,000
Price per unit to buy from outside supplier - $160
Assume Division A has an offer from a foreign buyer to purchase 10,000 units at $150 per unit. Assume the company management (Vice-
President above the two divisions) wants Division A to supply/transfer 10,000 units to Division B.
Calculate the most logical minimum acceptable transfer price?
Calculate the most logical maximum acceptable transfer price?