The Lighting division of Ibex Office Furniture needs 1,200 units of a leaded-glass lamp shade from the fabricating division. The company has a policy of negotiated transfer prices. The fabricating division has enough excess capacity to produce 2,000 units of the lamp shade. Its variable cost of production is $23. The market price of the lamp shade to external customers is $39.
What is the natural bargaining range for a transfer price between the two divisions? Explain why no price below your range would be acceptable. Also explain why no price above your range would be acceptable.