A company has two divisions: Manufacturing and Sales. The Manufacturing division produces a component that the Sales division uses in its final product. The Manufacturing division's variable cost per unit is $50, and its fixed costs are $10,000. The Sales division can buy the component from an external supplier for $70 per unit.

a. Calculate the transfer price using full cost plus markup (25% markup on full cost). b. Calculate the transfer price using variable cost plus markup (20% markup on variable cost). c. Discuss the advantages and disadvantages of each transfer pricing method.