8. Negotitated price approach to transfer pricing

Please complete the following three question:

A. In transfer pricing, if the negotiated transfer price is greater than the variable cost and less than the current market price of the product, which of the following statements is true?

	Total company profit will increase regardless of the actual transfer price, but the amount of the increase will depend on the negotiated price.
	Total company profit cannot increase when one division purchases goods from another division.
	Total company profoit will increase by the same amount regardless of the actual transfer price, while each division's increase in profit will depend on the negotiated price.
	The company will not benfefit by the purchasing division purchasing from

B. The Sacramento Division of Garafalo company makes a motor that the Dallas Divsion uses in the assemble of a machine. The sacramento Division currently makes only the amount it can sell - 59,200 motors each year- but it has the capacity to make a total of 74,000 motors each year. The variable cost of producing the motors is $42 per unit. The current market price to outside customers is $60. The Dallas Division is currently purchasing 14,800 moors each year from outside source at $60 per unit.

The management of the two divisions recently negotiated a transfer price of $48 per unit for 14,800 units. How much will each division's income increase as a result of this transfer, and how much will the income of the overall company increase?

	Increase in Income
Sacramento Division
Dallas Division
Garafalo company

C. Using the preceding information, by how much would each division's income increase and by how much would the income of the overall company increase if the transfer price were set at $50 instead of $48?

	Increase in Income
Sacramento Division
Dallas Division
Garafalo Company