Chantilly Industries Has Two Divisions: the Triangle Division and the Square

question 52

Essay

Chantilly Industries has two divisions: the Triangle Division and the Square Division. The Triangle Division produces a component that is used by the Square Division. Information about that component is as follows:
The Triangle Division can produce up to 15,000 components per year. The Square Division needs 1,500 units of the component for a product it manufactures.
Required:

a.
Determine the minimum transfer price that the Triangle Division would accept.
b.
Determine the maximum transfer price that the Square Division would pay.
c.
If the Triangle Division produces and sells 15,000 units in a highly competitive market, what would be the correct transfer price?

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Definitions:

External Urinary Sphincter

A circular muscle that controls the passage of urine through the urethra and prevents involuntary leakage.

Smooth Muscle

Involuntary muscle found in the walls of hollow organs and structures, such as blood vessels and the digestive tract, that contracts slowly and rhythmically.

Skeletal Muscle

Muscle tissue that is attached to bones and is responsible for initiating and controlling voluntary movements.

Tubular Maximum

The maximum rate at which substances can be reabsorbed or secreted by the renal tubules in the kidneys.