Sonico Electronics operates as a decentralized company. Sonico’s Battery division manufactures batter chargers that are sold both externally to outside customers and internally to the Camera division. Battery division’s annual capacity is 90,000 units. The revenue and costs associated with one battery charger are as follows:

Selling Price to external customers...........................$20

Variable Cost...............................................................12

Fixed Cost (based on capacity)....................................4

The Camera division would like to purchase 27,000 units of battery chargers; however, Cameron, the manager of the Camera division, is able to purchase the battery charger from an overseas supplier at $18. 

Required:

A. Assuming the Battery division operates at 60% capacity, what is the range of the transfer price, if any, for the battery charger? Cameron has learned that the Battery division operates below its capacity. He is willing to pay up to $17.50 for a battery charger. Should the Battery division accept the offer at $17.50?

B. Assuming the Battery division operates at 85% capacity, what is the range of the transfer price, if any, for the battery charger? Cameron has learned that the Battery division operates below its capacity. He is willing to pay up to $17.50 for a battery charger. Should the Battery division accept the offer at $17.50?

C. Assuming the Battery division operates at 100% capacity, what is the range of the transfer price, if any, for the battery charger? Cameron has learned that the Battery division operates at its capacity and understands that Sonico encourages internal transfer of products and services. He is willing to pay up to $18 for a battery charger. Should the Battery division accept the offer at $18?