31. The Bolt division of Murray industries manufactures bolts, which it transfers to the Machine division, which uses the bolts to make machines. It costs $0.04 per unit to make the bolts (plus fixed costs, which are $60,000 per year for the Bolt division), which sells for $0.20 per bolt on the market. The Machine division uses 40 bolts in each machine, which costs an additional

$50 to manufacture (plus fixed costs, which are $100,000 per year for the Machine division).

Machines are sold for $75 each. The Bolt division has the capacity to produce 1,000,000 bolts a year, which is sufficient to fill the needs of both the Machine division and the external market.

Both divisions are located in the same tax jurisdiction.

Calculate the transfer price if it is based on

a. Variable cost with a 10% markup

b. Full cost with a 10% markup

c. Market price

d. Which of the prices calculated above would the company as a whole most prefer?

e. What range would the transfer price fall into if it were negotiated between the two divisions?