Evaluate Transfer Pricing System (L.O.2): Selling division offers its product to outside markets at a price of $200. Selling incurs variable costs of $70 per unit and fixed costs of $50,000 per month based on monthly production of 1,000 units. Buying division can acquire the product from an alternate supplier at a cost of $210 per unit. Buying division can also acquire the product from selling division for $200, but it must pay $15 per unit in transportation costs in addition to the transfer price charged by selling division.

Required:

a. What are the costs and benefits of the alternatives available to selling and buying divisions with respect to the transfer of the selling division's product? Assume that selling can market all that it can produce.

b. How would your answer change if selling had idle capacity sufficient to cover all of buying's needs?