Womack Company is made up of two divisions, A and B. Division A produces a widget that Division B uses in the production of its product. Variable cost per widget is \($0.50;\) full cost is \($0.70.\) Comparable widgets sell on the open market for \($1.10\) each. Division A can produce up to 2 million widgets per year hut is currently operating at only 50 percent capacity. Division B expects to use 100,000 widgets in the current year.

Required:

1. Determine the minimum and maximum transfer prices.

2. Calculate Womack Company’s total benefit of having the widgets transferred between these divisions.

3. If the transfer price is set at \($0.50\) per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market.

4. If the transfer price is set at $ 1.10 per unit, determine how much profit Division A will make on the transfer. Determine how much Division B will save by not purchasing the widgets on the open market.

5. What transfer price would you recommend to split the difference?