Fast Track Shoe Company has two divisions, production and marketing. Production manufactures Fast Track MELCl g shoes, which it sells to both the marketing division and to other retailers (the latter under a different brand name). Marketing operates several small shoe stores in shopping centers that sell both Fast Track and other brands.

Relevant facts for production, which is operating far below its capacity, follow:

Sales jOnlCS tO OUTSIGSNSmere ceteccree eievese .n ee $28.50 per pair Unit-level Coshto: DrOdUCER ta. sists cgaheneibokaacbiae $18.00 per pair FACIITVSISVEIICOSIS | cte-acn sia ccersnereserc eamecese $100,000 per month The following data pertain to the sale of Fast Track shoes by marketing, which is operating far below its capacity:

SAlGS: DVIOS wie ed anne: Wee ate akon an teams $40 per pair Unit-level marketing COSHS .......ccccsecsteeeteeeneeees $1 per pair The company’s unit-level manufacturing and marketing costs are differential costs in this decision, but the facility-level manufacturing and marketing costs are not.

a. What is the minimum price that the marketing division can charge for the shoes and still cover the company's differential manufacturing and marketing costs?

b. What is the appropriate transfer price for this situation?

c. What effect would a transfer price set at $28.50 have on the minimum price set by the marketing manager?

d. How would your answer to (lb) change if the production division were operating at full capacity?