Problem
Tommasino Products, Incorporated, has a Motor Division that manufactures and sells a number of products, including a standard motor that could be used by another division in the company, the Automotive Division, in one of its products. Data concerning that motor appear below: Capacity in units 83,000 Selling price to outside customers $ 74 Variable cost per unit $ 22 Fixed cost per unit (based on capacity) $ 28 The Automotive Division is currently purchasing 9,000 of these motors per year from an overseas supplier at a cost of $72 per motor. Assume that the Motor Division has enough idle capacity to handle all of the Automotive Division's needs. Does there exist a transfer price that would make both the Motor and Automotive Division financially better off than if the Automotive Division were to continue buying its motors from the outside supplier?