points

eBook

References

Check my work

Check My Work button is now enabled

Item1

Item 1 10 points

Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows:

Capacity in units10,000Selling price to outside customers on the intermediate market$15Variable costs per unit$8Fixed costs per unit (based on capacity)$5

The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve.

Required:

1.Assume that the Valve Division has ample idle capacity to handle all of the Pump Division's needs. What is the acceptable range, if any, for the transfer price between the two divisions?