Communication Manufacturing (CM) is a division of Universal Communications, Inc. CM produces pagers and other personal communication devices. These de- vices are sold to other Universal divisions, as well as to other communication companies. CM was recently approached by the manager of the Personal Communications Division regarding a request to make a special pager designed to receive signals from anywhere in the world. The Personal Communications Division has requested that CM produce 10,000 units of this special pager. The following facts are available regarding the Communication Manufacturing 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 Personal Communications Division should purchase the pager externally.

(a) The Personal Communications Division has offered to pay the CM Division $105 per pager. The CM Division has no available capacity. The CM Division would have to forgo sales of 10,000 pagers to existing customers in order to meet the request of the Personal Communications Division.

(b) The Personal Communications Division has offered to pay the CM Division $160 per pager. The CM Division has no available capacity. The CM Division would have to forgo sales of 15,000 pagers to existing customers in order to meet the request of the Personal Communications Division.

(c) The Personal Communications Division has offered to pay the CM Division $105 per pager. The CM Division has available capacity.

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Selling price of standard pager Variable cost of standard pager Additional variable cost of special pager $90 50 35