Big Boy Engines is a division of Gas Guzzler Lawn Equipment Company. Big Boy makes engines for lawn mowers, snow blowers, and other types of lawn and garden equipment. It sells its engines to the Lawn Mower Division and the Snow Blower Division of the company, as well as to other lawn equipment companies. It was recently approached by the manager of the Lawn Mower Division with a request to make a special, high-performance engine for a lawn mower designed to mow heavy brush. The Lawn Mower Division has requested that Big Boy produce 8,000 units of this special engine. The following facts are available regarding the Big Boy Engine Division

Instructions For each of the following independent situations, calculate the minimum transfer price, and discuss whether the internal transfer should take place or whether the Lawn Mower Division should purchase its goods externally.

(a) The Lawn Mower Division has offered to pay the Big Boy Engine Division $110 per engine. Big Boy Engine has no available capacity. Big Boy Engine would have to forgo sales of 8,000 units to existing customers in order to meet the request of the Lawn Mower Division.

(b) The Lawn Mower Division has offered to pay the Big Boy Engine Division $170 petengine. Big Boy has no available capacity. Big Boy Engine would have to forgo sales of 12,000 units to existing customers in order to meet the request of the Lawn Mower Division.

(c) The Lawn Mower division has offered to pay the Big Boy Engine Division $110 per engine. Big Boy Engine Division has available capacity

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Selling price of standard lawn mower engine Variable cost of standard lawn mower engine Additional variable cost of special engine $86 $55 $40