Q$.3$ Arnault Inc. has two divisions. Division A makes and sells student desks. Division B

manufactures and sells reading lamps. Each desk has a reading lamp as one of its

components. Division A can purchase reading lamps at a cost of $$13$ from an outside

vendor. Division A needs $10,000$ lamps for the coming year. Division B has the capacity

to manufacture $50,000$ lamps annually. Sales to outside customers are estimated at $40,000$

lamps for the next year. Reading lamps are sold at $$14$ each. Variable costs are $$10$ per

lamp and include $$1$ of variable sales costs that are not incurred if lamps are sold internally

to Division A$.$ The total amount of fixed costs for Division B is $$80,000.$

$$ Required $>$

Consider the following independent situations:

What should be the minimum transfer price accepted by Division B for the $10,000$ lamps

and the maximum transfer price paid by Division A$?$ Justify your answer.

Suppose Division B could use the excess capacity to produce and sell externally $15,000$

units of a new product at a price of $$8$ per unit. The variable cost for this new product is

$$6$ per unit. What should be the minimum transfer price accepted by Division B for the

$10,000$ lamps and the maximum transfer price paid by Division A$?$ Justify your answer.

If Division A needs $12,000$ lamps instead of $10,000$ during the next year, what should

be the minimum transfer price accepted by Division B and the maximum transfer price

paid by Division A$?$ Justify your answer.