Reference no: EM132775671

Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers.

The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip          $50

Variable costs per chip      $20

Fixed production costs      $60,000

Fixed SG&A costs         $90,000

Monthly capacity             10,000 chips
External sales                   6,000 chips
Internal sales                        0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Problem 1: Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the maximum of the transfer price range for a possible transfer of the chip from one division to the other?

Option 1: $45
Option 2: $30
Option 3: $50
Option 4: $35