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Minimum and Maximum Acceptable Transfer Prices Denver Instrumentation, Inc. manufactures small gauges for use in household appliances and industrial...

Minimum acceptable transfer prices. Question listed at the end of the attached document.
Minimum and Maximum Acceptable Transfer Prices Denver Instrumentation, Inc. manufactures small gauges for use in household appliances and industrial machinery. The firm has two divisions: appliance and industrial. The company is decentralized, and each division is completely autonomous in its decision making. The appliance division produces two instruments, A and B. Cost information about these products follows. Appliance Division Instrument A Instrument B Direct Material $5.00 $4.00 Direct Labor $10.00 $20.00 Fixed Overhead $20.00 $40.00 Full Cost $35.00 $64.00 The appliance division has no variable overhead. Its direct-labor rate is $10 per hour, and a maximum of 10,000 hours is available per year. Fixed overhead is $200,000 per year and is applied on the basis of direct-labor hours. The planned activity level is 10,000 direct-labor hours per year. The demand in the external market for instrument A at a price of $45 per unit is unlimited. Anywhere from 0 to 3,000 units of instrument B can be sold annually in the external market at a price of $94 per unit. The external market has a demand for no more than 3,000 units of instrument B per year. The industrial division also has two products, type Y gauges and type Z gauges. Cost information about these products follows. Appliance Division Type Y Gauges Type Z Gauges Direct Material $12.00 $7.00 Direct Labor $10.00 $20.00 Fixed Overhead $10.00 $20.00 Full Cost $32.00 $47.00 In addition to the costs listed in the preceding table, each type Z gauge unit uses one unit of instrument B, which is produced in the appliance division and transferred to the industrial division. The costs in the preceding table for type Z gauge are the only costs incurred in the industrial division to transform a B instrument into a type Z gauge. They do not include the transfer price of instrument B or the costs of manufacturing instrument B. The industrial division has no variable overhead. The direct-labor rate is $10 per hour, and a maximum of 10,000 hours is available per year. Fixed overhead is $100,000 per year and is applied on the basis of direct-labor hours. The planned activity level is 10,000 hours per year. The demand for type Z gauges at a fixed price of $257 is unlimited. Anywhere from 0 to 6,000 units of type Y gauges can be sold at a fixed price of $92 per unit. Demand for type Y gauges is no more than 6,000 units per year.
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The labor used in the two divisions is different and is not transferable between them. The situation is summarized in the following diagram. QUESTION The following question refers to the transfer price per unit of instrument B for units transferred. Show calculations. Ignore any long-term or qualitative factors. - What is the minimum unit transfer price acceptable to the appliance division for any number of units of instrument B transferred in the range 0 to 2,000 units and in the range of 2,001 to 5,000 units?
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