3. Bright view Window Company manufactures and sells windows for residential properties. The frames for the windows are produced in the Frames Division and the Glass Division installs the glass on the frames received from the Frames Division. Due to the higher building work currently available, the Frames Division is able to sell also to custom homebuilders who themselves install the glass. The external selling price for the frames (unfinished window) in the intermediate market is 80 per unit. Both divisions are designated as profit centres. The transfer price for the Frames internally has been set at the long-run average market price. The following data is available to each division:

Estimated average selling price per unit of completed glass window	160
Long-run average selling price per unit of frame (unfinished window)	80
Incremental costs per unit of installing/finishing in the Glass Division	85
Incremental costs per unit in the Frames Division	65
The management of Glass Division has made the following calculation:
Selling price for the completed final window (per unit)	160
Transferred-in costs (at market price) per unit	(80)
Incremental costs in the Glass Division per unit	(85)
(Loss) on product	(5)

Required:

(a) Should transfer be made to the Glass Division by Frames Division if there is no excess capacity in the Frames Division? Is market pricing the correct transfer price?

(b) Assume that Frames Divisions maximum capacity for this product is 400 units per month and the sales to the intermediate market (homebuilders) by the division amount to 350 units per month. Should the 50 units be transferred to the Glass Division and if so at what transfer price? In your analysis assume that Frames division will maintain the 80 selling price indefinitely and will not lower price to outsiders even if idle capacity exists.