Reference no: EM132517206

Point 1: Sunland Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.

Point 2: Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor. Division A needs 9,900 lamps for the coming year.

Point 3: Division B has the capacity to manufacture 54,800 lamps annually. Sales to outside customers are estimated at 44,900 lamps for the next year. Reading lamps are sold at $13 each. Variable costs are $7 per lamp and include $1 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $87,500.

Question 1: What should be the minimum transfer price accepted by Division B for the 9,900 lamps and the maximum transfer price paid by Division A?

Question 2: If Division A needs 14,850 lamps instead of 9,900 during the next year, what should be the minimum transfer price accepted by Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)