A company has two divisions: Production and Sales. The Production division manufactures a component that the Sales division uses in its final product. The Production division's variable cost per unit is $40, and its fixed costs are $15,000. The Sales 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. Discuss the impact of transfer pricing decisions on divisional performance evaluation.