1. (25 points).Specialized manufactures bikes using two divisions: The Framing Division and the Assembly Division. The Framing Division manufactures the bike frame using high grade carbon and the assembly division order the bike components such as the wheels, the brakes and the drivetrain, and assembles the bikes. Both divisions operate as investments centers, and top divisional managers negotiate the transfer price for any transactions between the two divisions.

The Framing Division has a production capacity of 200,000 bike frames and the following production cost per bike frame.

Framing Division - Production Costs Per unit
Direct materials	$480
Direct labor	75
Variable manufacturing overhead	90
Fixed manufacturing overhead	180
Variable selling & administration	120

Note: for bike frames transferred internally, the variable selling & administration is only $45

per unit.

a. Assume that the Framing Division currently operate at maximum capacity sell all bike frames to outside customers at a selling price of $1,200 per frame. The Assembly Division would like to purchase 70,000 bike frames from the Framing Division. What is the minimum transfer price acceptable to the Framing Division's manager?

b. Assume that the Framing Division currently sell 120,000 bike frames to outside customers at a selling price of $1,200 per bike frame. The Assembly Division would like to purchase 70,000 bike frames from the Framing Division. What is the minimum transfer price acceptable to the Framing division's manager?

c. Assume that the Framing Division currently sell 120,000 bike frames to outside customers at a selling price of $1,200 per frame. The Assembly Division would like to purchase 100,000 bike frames from the Framing Division. The Assembly Division's manager is inflexible and his purchase order is an "all-or-nothing" transaction. What is the minimum transfer price acceptable to the Framing division's manager?

d. Assume that the Framing Division currently sell 120,000 bike frames to outside customers at a selling price of $1,200 per frame. The Assembly Division would like to purchase 100,000 bike frames from the Framing Division. The Assembly Division's manager is flexible and can buy as many or little bike frames as the Framing Division's manager is willing to supply. What is the minimum transfer price acceptable to the Framing division's manager?

e. Assume that the Framing Division currently sell 120,000 bike frames to outside customers at a selling price of $1,200 per frame. The Assembly Division currently buy 70,000 equivalent bike frames from an outside supplier for $650 per bike frame.What is the range of acceptable transfer prices (if any) between the two divisions? What's the impact on the entire company profit if the managers agree on a transfer price, and the Assembly Division will buy the 70,000 bike frames internally and not from the outside supplier?