Problem
Royal Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below:
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Capacity in units
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66,000
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Selling price to outside customers
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$ 69
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Variable cost per unit
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$ 21
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Fixed cost per unit (based on capacity)
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$ 35
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The Transmission Division is currently purchasing 6,000 of these connectors per year from an overseas supplier at a cost of $65 per connector.
What is the maximum price that the Transmission Division should be willing to pay for connectors transferred from the Connector Division?