SportCo, Inc., is a multi-divisional company that produces and sells athletic equipment. vision 1 produces components for a variety of products, while Division 2 assembles the components and packages the finished product. Both divisions are free to buy and sell internally or externally. For a particular soccer ball, the cost structure within Division 1 and market price are as follows:

a. Assuming Division 1 is not operating at capacity, calculate the minimum acceptable transfer price.

b. Assuming Division 1 is operating at capacity, calculate the transfer price.

c. Explain why capacity is a factor in the transfer pricing decision.

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Variable cost Fixed cost Market price $ 10 420