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What is the range of acceptable prices

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Question - The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a market price of $200 each. Each trailer incurs $80 of variable manufacturing costs. The Trailer division has capacity for 40,000 trailers per year and has fixed costs of $1,000,000 per year.

1. Assume the Assembly division of Baxter Bicycles wants to buy 15,000 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers (and has no excess capacity), what price should be used on transfers between divisions?

2. Assume the Trailer division currently only sells 20,000 trailers to outside customers and has excess capacity. The Assembly division wants to buy 15,000 trailers per year from the Trailer division. What is the range of acceptable prices on transfers between divisions?

Reference no: EM133174618

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