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32. Constellation Corporation manufactures parts in Division A that are transferred to Division B for use in their product, which requires one part per
32. Constellation Corporation manufactures parts in Division A that are transferred to Division B for use in their product, which requires one part per unit. Costs are as follows: DIVISION A Variable Fixed $30 per part $400,000 DIVISION B $80 per unit + cost of parts $500,000 Division A has the capacity to produce 40,000 parts, which could sell on the market for $50 per part. Market demand is 30,000 parts. Division B has the capacity to produce 40,000 units, which could all sell on the market for $200 per unit. Division A operates in a jurisdiction with a 20% tax rate, and Division B operates in a jurisdiction with a 25% tax rate. a. Calculate the transfer price if it is based on: i. Variable cost with a 20% markup ii. Full cost with a 20% markup iii. Market price b. What range would the transfer price fall into if it were negotiated between the two divisions? c. Would the company as a whole prefer a high or low transfer price?
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