CompuTech’s Western Division has an opportunity to transfer component Z50 to the company’s Eastern Division. The Western Division, which offers its Z50 product to outside markets for $150, incurs variable costs of $55 per unit and fixed costs of $37,500 per month based on monthly production of 1,000 units.

The Eastern Division can acquire the Z50 product from an alternate supplier for $157.50 per unit or from the Western Division for $150 plus $10 per unit in transportation costs.

Required

a. Whatare the costs and benefits of the alternatives available to the Western and Eastern Divisions with respect to the transfer of the Western Division’s Z50 product? Assume that the Western Division can market all that it can produce.

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