14. Division S produces a component that is used by Division B. Division Ss unit costs of manufacturing the component are: Direct materials $60; Direct labor $16; Variable overhead $20; Fixed overhead $24 (based on a practical volume of 250,000 components).

Division S also incurs these costs: fixed selling & administrative $1,200,000, and variable selling $4/unit.

Division S expects to sell only 200,000 components next year. The variable selling expenses are avoidable if the component is sold internally.

Division B has been buying the same component from an external supplier for $160 each. It expects to use 40,000 units of the component next year. The manager of Division B has offered to buy 40,000 units from Division S for $112 each.

The maximum transfer price should be:

a.	$120	c.	$96
b.	$160	d.	$76

Refer to question 14. How should a transfer price be determined to achieve goal congruence?

a.	Use market price because the selling division is operating at full capacity	c.	Negotiate a transfer price between the minimum and maximum transfer price
b.	Use market price because the selling division is operating with excess capacity	d.	There is no transfer price possible in this case since X Co. would be better off buying the product from an outside supplier.