Lemon Quench manufactures a soft drink. The company is organized into two divisions: glass and filling. The glass division makes bottles and sells them to the filling division. Each division manager receives a bonus based on the division's net income.
In the open market, bottle producers are charging as follows:

The costs per case in the glass division are as follows:
Volume per Month Glass Division Cost per Case
11,000.......................................$10.71
12,000.........................................10.52
13,000.........................................10.35
14,000.........................................10.18
The filling division's costs (excluding bottle purchases) and selling prices are as follows:

The current capacities are 15,000 cases per month for the filling division and 14,000 cases per month for the glass division.
Instructions
(a) If market prices are used as transfer prices, what is the most profitable volume for each division and for the company as a whole? Show calculations to support your answer. Assume that transfers and sales are made in units of 1,000 and that the glass division is unable to sell its production in the outside market.
(b) Under what conditions should market prices not be used in determining the transfer prices?

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Number of Cases per Month 11,000 12,000 13,000 14,000 15,000 Total Cha $135,300 144,000 152,750 158,900 165,000 Average Price per Case $12.30 12.00 11.75 11.35 11.00 Volume per Month 11,000 12,000 13,000 14,000 15,000 Selling Price $38.00 37.55 37.20 36.80 36.20 Cost per Case $24.32 24.09 23.91 23.76 23.57