Qvat Division, a subsidiary of Imogene Ltd., manufactures a product with the following costs:

Direct material ........$15.00

Direct labor ........ 26.25

Variable overhead ....... 12.75

Fixed overhead ........ 18.00

Total ...........$72.00

Some of the chips are sold externally for $162; others are transferred internally to the Kwak Division. Qvat Division’s plant manager wants to establish a reasonable transfer price for chips transferred to Kwak. The purchasing manager of Kwak Division has informed the plant manager that comparable chips can be purchased externally in a price range from $112.50 to $172.50.

a. Determine the upper and lower limits for the transfer price between Qvat Division and Kwak Division.

b. If Qvat Division is presently selling all the chips it can produce to external buyers, what minimum price should be set for transfers to Kwak Division?