Nike makes shoes. The company has sufficient capacity to make 70,000 shoes per year. The company expects to sell 65,000 shoes this year. Puma produces shoes and has a total need of 20,000 shoes this year. Puma is currently buying shoes from an outside supplier for $11.25 each. The cost to Nike to make the shoes are $5.00 for direct materials, $2.00 for direct labor, $2.50 for variable manufacturing overhead, and $1.50 for fixed manufacturing overhead. Direct labor is a variable cost. Nike sells shoes on the outside market for $11.50 each.
Assuming that Puma buys its entire 20,000 requirement of shoes from Nike, is it possible for Nike and Puma to agree to a mutually acceptable transfer price and if so, within what range would that transfer price be?