Trendell Products, Incorporated, has a Motor Division that manufactures and sells a number of products, including a standard motor. Data concerning that motor appear below:
The company has a Automotive Division that could use this motor in one of its products. The Automotive Division is currently purchasing 8,000 of these motors per year from an overseas supplier at a cost of $66 per motor.
Required:
Assume that the Motor Division has enough idle capacity to handle all of the Automotive Division's needs.
What is the acceptable range, if any, for the transfer price between the two divisions?

From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred)
Transfer price > $36 per unit + ($0 ÷ 8,000 units) = $36 per unit + $0 per unit = $36 per unit
From the perspective of the purchasing division, the transfer is financially attractive if and only if:
Transfer price < Cost of buying from outside supplier
Transfer price < $66 per unit
Combining the two requirements, the range of acceptable transfer prices is:
$36 per unit < Transfer price < $66 per unit