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Question - Megaco's standard cheddar cheese monthly manufacturing capacity and related costs are as follows:
Maximum capacity (kgs) 12,000
Current utilization (kgs) 8,000
Variable costs per kg:
Product cost $6.00
Selling, administration and general expenses $3.00
Monthly fixed costs in respect of providing the maximum capacity:
Production $15,000
Selling, administration and general expenses $5,000
Required - From the perspective of the overall company, determine the range of transfer prices for cheddar cheese that should be negotiated between Megaco and Restaurant Division. Explain your answer.
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