Pizarro Manufacturing makes a variety of products, including stand mixers. Pizarro’s Stand Mixer Division can use a component, K32, manufactured by Pizarro’s Electrical Division. The market price for K32 is $ 23 per unit. The variable cost per unit for K32 in the Electrical Division is $ 8, while the absorption cost per unit is $ 15. The divisions at Pizarro use a negotiated price strategy to set transfer prices between divisions.
What is the lowest acceptable transfer price to the Electrical Division? What is the highest acceptable transfer price that the Stand Mixer Division would pay? Explain your answer.