Division R makes watzits. The company has sufficient capacity to make 70,000 watzits per year. The company expects to sell 65,000 watzits this year. Division S uses watzits in their production and has total needs of 20,000 watzits this year. Division S is currently buying watzits from an outside supplier for $11.25 each. The cost to Division R to make the watzits 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. Division R sells watzits on the outside market for $11.50 each.
Assuming that Division S buys its entire 20,000 requirement of watzits from Division R, is it possible for Division R and Division S to agree to a mutually acceptable transfer price and if so, within what range would that transfer price be?