The Watkins Company is​ decentralized, and divisions are considered investment centers. Watkins specializes in sports​ equipment, and one division manufactures netting that is used for basketball​ hoops, soccer​ goals, and other sports equipment. The Netting Division reports the following information for a​ heavy-duty basketball hoop​ net:

The Watkins Company is decentralized, and divisions are considered investment centers. Watkins specializes in sports equipment, and one division manufactures netting that is used for basketball hoops, soccer goals, and other sports equipment. The Netting Division reports the following information for a heavy-duty basketball hoop net:

 

Sales Price per Unit
$18
Variable Cost per Unit
6
Contribution Margin per Unit
$12

 

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Solution

The negotiable range for the transfer price is

to

.

Requirement 2. What is the minimum transfer price the Netting Division should consider if operating at capacity? Below capacity?
The minimum transfer price the Netting Division should consider, if operating at capacity, is

.

If they are below capacity, then the minimum transfer price would be

.

Requirement 3. What is the maximum transfer price the Basketball Equipment Division should consider?
The maximum transfer price the Basketball Equipment Division should consider is

.