A company has two divisions: Manufacturing and Distribution. The Manufacturing division produces a component that the Distribution division uses in its final product. The Manufacturing division's variable cost per unit is $40, and its fixed costs are $20,000. The Distribution division can buy the component from an external supplier for $50 per unit.

a. Calculate the transfer price using full cost plus markup (20% markup on full cost). b. Calculate the transfer price using variable cost plus markup (10% markup on variable cost). c. Analyze the impact of transfer pricing decisions on divisional performance evaluation.