The Measurement Division of Flow Co Flow Has Recently Purchased a Small Company Which Makes Sprinkler

The Measurement Division of Flow Co.produces pumps which it sells for $20 each to outside customers.The Measurement Division's cost per pump,based on normal volume of 500,000 units per period,is shown below: $$\begin{array} { | l | r | } \hline \text { Variable costs } & \$ 12 \\\hline \text { Fixed ouerhead } & \underline{3} \\\hline \text { Total } &\underline{ \$ 15} \\\hline\end{array}$$
Flow has recently purchased a small company which makes sprinkler systems.This new company is presently purchasing 100,000 pumps each year from another manufacturer.Since the Measurement Division has a capacity of 600,000 pumps per year and is now selling only 500,000 pumps to outside customers,management would like the new Sprinkler Division to begin purchasing its pumps internally.The Sprinkler Division is now paying $20 per pump,less a 10% quantity discount.The Measurement Division could avoid $1 per unit in variable costs on any sales to the Sprinkler Division.Required:
a.Treating each division as an independent profit center,within what price range should the internal sales price fall?
b.Now assume that the Measurement Division is selling 600,000 pumps per year on the outside.Determine the appropriate transfer price.Show all computations.(Note: Due to limitations in fonts and word processing software,> and < signs must be used in this solution rather than "greater than or equal to" and "less than or equal to" signs. )

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a.Current price being paid by the Sprink...

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