The England division of an aeronautics company produces a digital thermometer. The thermometer can be sold on the open market for $120 each, or it can be used by the Italy division (another division of the aeronautics company) which produces a temperature control gauge. The Italy division can buy the digital thermometer from an external supplier for $80. The Texas division incurs $36 of variable costs and $70 of fixed costs in producing the thermometers. At present, the England division is operating at 70% capacity and can provide the Italy division with all the thermometers it needs.
Given the above conditions, explain why the Italy division should (or should not) buy the required thermometers from the England division.
Based upon your answer in (#1), what would be the transfer price for the thermometer? (be sure to include a high and low price)
if the England division were operating at %100 capacity, explain why your answer to (#1) would (or would not) change.
Based upon your answer in (#3), what would be the transfer price for the thermometer? (be sure to include the high and low price)