Table Lake Cruises, Incorporated, Operates Two Divisions: (1) a Recreational

Table Lake Cruises, Incorporated, operates two divisions: (1) a Recreational Division that owns and manages charter boats on the lake and (2) a Repair Division that works on small gasoline crafts as well medium-size diesel engine boats. The Repair Division has an estimated variable cost of $45 per labor-hour and has a backlog of work for diesel engines. They charge $125 per hour for labor & overhead, which is standard for this type of work. The Recreational Division complained that it could hire its own repair workers for $85 per hour, including leasing an adequate work area.
Required:
(a) What is the minimum transfer price per hour that the Repair Division should obtain for its services, assuming it is operating at capacity?
(b) What is the maximum transfer price per hour that the Recreational Division should pay?
(c) If the Repair Division had idle capacity, what is the minimum transfer price that the Repair Division should obtain?

Correct Answer:

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(a)Because the Repair Division is operat...

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