Lamothe Solutions is a management consulting firm. Its Business Division advises firms on the adoption and use of financial systems. Civic Division consults with state and local governments. Civic Division has a client that is interested in implementing a new costing system in its public works department. The division’s head approached the head of Business Division about using one of its associates. Corporate Division charges clients $750 per hour for associate services, the same rate other consulting companies charge. The Civic Division head complained that it could hire its own associate at an estimated variable cost of $350 per hour, which is what Business pays its associates. 

Required

a. What is the maximum price that Civic Division should pay?

b. What is the maximum transfer price that Business Division should obtain for its services, assuming that it is operating at capacity?

c. Would your answers in requirement (a) or (b) change if Business Division had idle capacity? If so, which answer would change, and what would the new amount be?