Springer Company produces and sells home-ground wheat flour. The flour mill division sells to the general public in its outlet store located at the mill. The mill division also is the supplier of flour for its bakery division located across the street from the flour mill. The following information has been collected by Springer's controller for the flour mill division:
| Production capacity | 20,000 pounds |
| Selling price | $0.90 per pound |
| Variable production cost | $0.20 per pound |
| Variable selling cost | $0.08 per pound |
The bakery needs 6,000 pounds of flour. If the flour mill transfers flour to the bakery, it can avoid $0.03 of the variable selling cost.
Required:
| a. | If the flour mill can only sell 12,000 pounds at its outlet store to outside customers, |
what is
the lowest acceptable transfer price per pound that the flour mill division should accept?
| b. | If the flour mill can sell all 20,000 pounds at its outlet store to outside customers, |
what is
the lowest acceptable transfer price per pound the flour mill division should accept?
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