Collier Products Has a Valve Division That Manufactures and Sells

Collier Products has a Valve Division that manufactures and sells a standard valve.The Valve Division has a capacity of 100,000 units.The variable costs per unit are $16.The fixed costs per unit are $9,based on the capacity of 100,000 units.None of the fixed costs are avoidable.The selling price to outside customers in the intermediate market are $30 per unit.
The Pump Division wants to purchase the valve from the Valve Division for one of its pumps.The Pump Division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $29 per valve.The selling price of the completed pump is $100 per unit and the costs to complete the pump are $60 per unit,excluding the valve purchased from the other division.
Required:
A) Assume the Valve Division has ample idle capacity to produce the 10,000 valves for the Pump Division. What should be the transfer price between the two divisions? Give a range. Determine the minimum transfer price for the Valve Division and the maximum transfer price for the Pump Division.
B) Assume the Valve Division does not have idle capacity to produce the valves for the Pump Division. It is selling all that it can produce to outside customers in the intermediate market. What should be the transfer price between the two divisions? Give a range. Determine the minimum transfer price for the Valve Division and the maximum transfer price for the Pump Division. Will a transfer occur?
C) Assume the Valve Division does not have idle capacity to produce the valves for the Pump Division. It is selling all that it can produce to outside customers in the intermediate market. Now assume the Valve Division saves $3.00 per unit by selling internally. What should be the transfer price between the two divisions? Give a range. Determine the minimum transfer price for the Valve Division and the maximum transfer price for the Pump Division.

Correct Answer:

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A)$16 per unit to $29 per unit.$16 is th...

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