Salamander Company expects the following results in the coming period:
Included in Division A's costs are 10,000 units of a subcomponent purchased from an outside supplier for $45. The managers have recently initiated negotiations for Division B to supply the components to Division A. Division B has a total capacity of 40,000 units.
Required:
(a) Would the Salamander Company prefer the subcomponent used by A to be purchased internally from B or from the outside vendor?
(b) What would be the maximum and minimum transfer prices?
Correct Answer:
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