Reference no: EM132580959

eneva Corporation has a Castings Division that does casting work of various types. The company's Machine Products Division has asked the Casting Division to provide it with 10,000 special castings each year on a continuing basis. The special castings would require $20 per unit in variable production costs. The Machine Products Division has a bid from an outside supplier of $30 per unit for the castings.

In order to have time and space to produce the new castings, the Castings Division would have to cut back produciton of another casting: the NW2 which it presently is producing. The NW2 sells for $40 per unit, and requires $25 per unit in variable production costs. Boxing and shipping costs of teh NW2 are $4 per unit. Boxing and shipping costs for the new special casting would be only $2 per unit. The company is now producing and selling 100,000 units of the NW2 each year. Production and sales of this casting would drop by 10% if the new casting were produced.

Question 1: What is the range of transfer prices, if any, within which both the divisions' profits would increase as a result of agreeing to the transfer of 10,000 castings per year from the Castings Division to the Machine Products Division?

Question 2: Is it in the best interest of Geneva Corporation for this transfer to take place? How much could the company gain/lose from this transfer?