Oneida Associates is a real estate company operating in the Finger Lakes region of central New York. Its leasing division rents and manages properties for others, and its maintenance division performs services such as carpentry, painting, plumbing, and electrical work. The maintenance division, which has an estimated variable cost of $29 per labor hour, works for both Oneida and other companies. It could spend 100 percent of its time working for outsiders. Maintenance division charges $71 per hour for labor performed for outsiders, the same rate that other maintenance companies charge. The leasing division complained that it could hire its own maintenance staff at an estimated variable cost of $40 per hour.
a. What is the minimum transfer price that the maintenance division should obtain for its services,
assuming that it is operating at capacity?
b. What is the maximum price that the leasing division should pay?
c. Would your answer in requirements (a) or (b) change if the maintenance division had idle capacity? If so, which answer would change, and what would the new amount be?
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