Question - 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 $ 10.08 from an outside vendor. Division A needs 10,600 lamps for the coming year.
Division B has the capacity to manufacture 51,000 lamps annually. Sales to outside customers are estimated at 40,400 lamps for the next year. Reading lamps are sold at $ 11.94 each. Variable costs are $ 6.74 per lamp and include $ 1.26 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 $ 82,800.
Consider the following independent situations.
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? (Round answers to 2 decimal places, e.g. 10.50.)