Variable Cost as a Transfer Price A product’s variable cost is $1 and its market value is $2 at a transfer point from Division S to Division P. Division P’s variable cost of processing the product further is $1.25, and the selling price of the final product is $2.75.

1. Prepare a tabulation of the contribution margin per unit for Division P per- formance and overall performance under the two alternatives of

(a) processing further and

(b) selling to outsiders at the transfer point. 2. As Division P manager, which alternative would you choose? Explain. lop1