Question 2 (9 marks) Ruby Products, Inc. has a Valve Division that manufactures and sells standard valves as follows: Capacity in units 130,000 Selling price to outside customers Variable Cost per unit $118 $85 Fixed costs per unit (based on capacity) $20 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 25,000 valves per year from an overseas supplier at a cost of $98 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 for the valve? 2. Assume that the Valve Division is selling all that it can produce to outside customers - it has no idle capacity. What is the acceptable range, if any, for the transfer price between the two divisions for the valve? 3. Assume the Pump Division needs 30,000 "special" high-pressure valves per year. The Valve Division's variable costs to manufacture the special valve would increase by $5 per unit. To produce the special valves, the Valve Division would have to reduce its production and sales of regular valves from 130,000 units per year to 90,000 units per year. As far as the Valve Division is concerned, what is the lowest acceptable transfer price?