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