Drang and Lluxia are two divisions in Nature Corporation. Both managers are independent decision mak

 
   

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Drang and Lluxia are two divisions in Nature Corporation. Both managers are independent decision makers and are compensated based on net income. Bonuses are a substantial part of total compensation and are determined based on net income. Drang produces storms and Lluvia produces rain. It requires 20 units of rain to produce 1 storm. Contribution format income statements and capacity information for the two divisions from last month follow Drang Lluvia 20,000 16,000 Сараcity Units produced and sold 50 50 $75,000 Sales $307,200 177.600 $129,600 VC 39,000 $36,000 CM FC 20,000 85.000 $16,000 NI 44,600 At the current time, the two divisions acquire all resources from third parties. The manager of Drang believes that it might be a good idea to consider purchasing her rain from Lluvia Both managers have considered the idea. The manager of Drang has determined that she will save $10 per storm due to superior ability to plan and coordination information. The manager of Lluvia has determined that she will save $2 per unit in variable selling costs 1. What is the range for a transfer price that will benefit both divisions as well as Nature Corporation? 2. Prepare contribution format income statements that show the effect of a transfer price of $15 on each division. You may assume that last month's results are typical What transfer price do you believe the manager of Lluvia would prefer? Explain why 3,