Question: If J Div was granted autonomy to set the transfer price, what will be the likely range of the transfer prices? Recommend the transfer prices

If J Div was granted autonomy to set the transfer price, what will be the likely range of the transfer prices? Recommend the transfer prices that will maximize the profits of the company as a whole.

J Div M Div

Annual max capacity (unit) 100,000 units 60,000 units

Annual sales volume (units)

External sales 60,000 units 48,000 units

Transfer sales (to M Div) 48,000 units -

unit selling price (external) $400 $1,000

Unit variable manufacturing costs $300 $310 (exclude cost of material from J Div)

Annual fixed overheads $5,000,000 $6,000,000

M Div can buy from external supplier (similar material from J Div) at $350 per unit.

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