transfer price is acceptable.
H 3
Assume that the external supplier reduced the selling price to $700 per unit of XT86 to the Products Division. The Components Division reduced the price for external customers to $800, but sales to external customers could be increased only to 45,000 units of XT86. Products Division wants to acquire as many as 20,000 units if the transfer price is acceptable. For simplicity assume that there is no external market for the final 5,000 units of Components Division’s capacity.
a) Using the general guideline, what is (are) the minimum transfer price (s) that should lead to the correct economic decision? Ignore performance evaluation considerations.
b) What is the range between the minimum and maximum transfer price the managers of component and products divisions can negotiate the final TP?
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