Having trouble answering pricing transfer problem

Aug 5, 2012
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Can someone PLEASE help me solve this problem and explain to me how to arrive at the answer:

Division B has asked Division A of the same company to supply it with 5000 units of part K932 this year to use in one of its products. Division B has received a bid from an outside supplier for the parts at a price of $32.00 per unit. Division A has a maximum capacity to produce 10,000 units of part K932 per year.
Division A expects to sell 7000 units pf part K932 to outside customers this year at a price of $35.00 per unit. To fill the order from Division B, Division A would have to cut back its sales to outside customers.
Division A produces part K932 at a variable manufacturing cost of $24.00 per unit. The cost of packing and shipping the parts to outside customers is $2.00 per unit. These packing and shipping costs would not have to be incurred on sales of parts to Division B.

a - What is the minimum price per unit that Division A would have to require to sell 5,000 units of K932 to Division B?

b - Assume that the maximum production capacity of Division A is 12,000 units. What is the maximum price per unit that Division A would require to sell 4000 units of K932 to Division B?

All your help is greatly appreciated !!!!!!!!!!!


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