Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 11,000 units of excess capacity. Selling Division currently sells the product for $45 per unit and Buying Division currently buys 11,000 units of the product from an outside source for $45 per unit. Variable costs of the product are $9, of which $2.25 is the cost of selling the product to an outside customer.
Using Selling price less avoidable costs as the minimum price, fill in the following formula for the desired transfer price: $ Using Variable costs as the minimum price, fill in the following formula for the desired transfer price: $ Assume there are no avoidable costs with an internal sale (variable costs equal $9) and that Buying Division buys 11,000 units from Selling Division. Complete the table for each transfer price:
Transfer Price Transfer Price

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$16 $40 Increase in net income of Selling Division Increase in net income of Buying Division Increase in net income of Overall Corporation %24 %24