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A company has two divisions: Division A, which produces a component used by Division B in its final product. Division A incurs variable costs of
A company has two divisions: Division A, which produces a component used by Division B in its final product. Division A incurs variable costs of $10 per unit and fixed costs of $5 per unit. Division B can buy the component from an external supplier for $20 per unit. Discuss the different methods of transfer pricing (cost-based, market-based, negotiated) and recommend a transfer price for the component.
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