The Texas division of an aeronautics company produces a digital thermometer. The thermometer can be sold on the open market for $180 each, or it can be used by the Kansas division (another division of the aeronautics company) which produces a temperature control gauge. The Kansas division can buy the digital thermometer from an external supplier for $140. The Texas division incurs $75 of variable costs and $100 of fixed costs in producing the thermometers. At present, the Texas division is operating at 70% capacity and can provide the Kansas division with all the thermometers it needs.

a. Given the above conditions, explain why the Kansas division should (or should not) buy the required thermometers from the Texas divisions.

b. Based upon the answer in part (a), what would be the transfer price for the thermometer? Include a high and low price.

c. If the Texas division were operating at 100% capacity, explain why the answer in part (a) would (or would not) change.

d. Based upon the answer in part (c), what would be the transfer price for the thermometer? Include a high and low price.

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