Mid-Atlantic Company permits its decentralized units to “lease” space to one another. Maryland Division has leased some of its idle warehouse space to Virginia Division for $120 per square foot per month. Recently, Maryland obtained a new five-year contract, which will increase its production sufficiently so that the warehouse space is more valuable to it. Maryland has notified Virginia that the rental price will increase to $260 per square foot per month. Virginia can lease space at $190 per square foot in another warehouse from an outside company but prefers to stay in the shared facilities. Virginia’s manager states that she would prefer not to move. If Virginia Division continues to use the space, Maryland will have to rent other space for $230 per square foot per month. (The difference in rental prices occurs because Maryland Division requires a more substantial warehouse building than Virginia Division does.)

Required
Recommend a transfer price and explain your reasons for choosing that price.