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Calculate the most logical minimum acceptable transfer price

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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?

Reference no: EM131966846

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