Calculate the transfer price if it is based on market price. Then calculate the pre-tax income of each division and the firm as a whole with this transfer price. Your firm has two divisions. West Division manufactures 100,000 bearings per year at a variable cost of $5 per unit, which it transfers to East Division, who uses 10 bearings in each of the 10,000 machines it produces. Each machine costs an additional $250 in variable costs to manufacture, and East Division sells them for $500 per unit. Fixed costs are $300,000 per year for West Division, and

$800,000 per year for East Division. The bearings sold by West Division have a market price of $10 per bearing, but West Division would have to spend $100,000 per year in advertising to sell on the market.