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Question - Layla Inc. has two units; Luna Unit and Max Unit. Luna Unit produces specialized dog toy parts, including one that could be used by the Max Unit. Costs for the dog toy part are variable costs, $16; fixed costs, $20. Luna has capacity to make 20,000 of the parts, and it is operating at capacity. It sells the dog toy part to other companies for $52 each, If a sale were made to the Max Unit, variable costs would be reduced by $4 per part on those units. The Max Unit needs 8,000 parts per year, and it has been purchasing them from another company for $45 each.
Required -
1) If a transfer were to occur between Luna Unit and Max Unit, what is the maximum that Max Unit should be willing to pay for the dog toy part?
2) If a transfer were to occur between Luna Unit and Max Unit, what is the minimum price that Luna Unit should be willing to accept?
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