An Appropriate Transfer Price Between Two Divisions of the Fathom

An appropriate transfer price between two divisions of The Fathom Company can be determined from the following data: (CIA adapted)
$\begin{array}{llr} \text { Fabricating Division } &\\ \text {Market price of subassembly } &\$50\\ \text { Variable cost of subassembly } &\$20\\ \text { Excess capacity (in units) } &1,000\\ \text { Assembling Division} &\\ \text { Number of units needed } &900\\\end{array}$

What is the natural bargaining range for the two divisions?

A) Between $20 and $50.
B) Between $50 and $70.
C) Any amount less than $50.
D) $50 is the only acceptable transfer price.

Correct Answer:

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