1.TAA, a telecommunications corporation, has two completely independent profit centers considering a transfer, TAA will not dictate transfers or impose a transfer pricing policy on the divisions. .

One of TAA's divisions; Southwestern Ringer, produces telephone sets that it sells for $30 each. The standard absorptive manufacturing cost is $24, which includes $6 per unit fixed overhead. Fixed overhead is allocated over its annual sales forecast of 50,000 telephone sets. Maximum production capacity is 75,000, sets annually.

Another division, Northeastern Tell, can use the telephone sets in an answering machine telephone-radio product it markets. As an alternative to buying telephone sets from Southwestern, Northeastern can enter into a contract for the 20,000 sets needed a Mexican company, OLA, Inc. OLA has quoted a price of $25 per set for the same quality telephone.To produce the phone Southern will incur additional cost of $2.5 perDetermine whether a transfer should take place between Southwestern Ringer and Northeastern Tell at current levels.What range of prices for a transfer if it is to occur?

b.Should a transfer occur if Southwestern can increase sales and production volumes to 60,000 sets annually by dropping the sales price to $27.50? What is the range of prices if a transfer should occur?

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