The Urban Corporation has three divisions, A, B, and C. Division A produces parts used in the subassembly manufactured by Division B. There is no intermediate market for these parts. The subassembly produced in Division B is used in the final product produced by Division malic market price for the subassembly is $35 per unit.

Transfer prices between Divisions A and B are calculated using the full cost method. Transfer prices between Divisions B and C are calculated using the full cost plus 20% method. Pertinent information for the divisions is as follows:pg58

Required:
a Calculate the gross profit of each division using the transfer price methods utilized ty the corporation.
b Suppose the cost plus method used between Divisions B and C has not fairly represented the potential market price of the subassembly. The manager of Division B insists on transferring at the market price of the subassembly. But the manager of Division C refuses because transferring at market price would have a huge adverse effect on the division’s performance evaluation. So after 2 weeks of intensive negotiating, a transfer price of $32.50 per unit was agreed upon.
Calculate the gross profit of each division using the new transfer price.
c Assume all three divisions are evaluated the same way; that is, the gross profit of each division is used as a basis for performance evaluation. Does this seem fair to Division A? If not, give some possible solutions.

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Division A: Sales to Division B Variable costs per unit Fixed costs (annual).. Division B: Sales to Division C Transfer costs from Division A Variable costs to produce subassembly Fixed costs (annual) Division C: Sales at $42 per unit. Transfer costs from Division B Variable costs to produce finished product. Fixed costs (annual) 10,000 units $7 $30,000 10,000 units $ $10/unit $50,000 10,000 units $ $2/unit $30,000