A global corporation sets transfer prices between its divisions: Division A sells a component to Division B at cost plus 20%. Division B sells the final product externally at market price. Costs for Division A: Variable costs $50,000, fixed costs $20,000, production volume 10,000 units. Market price for the final product is $100/unit.

• Requirements:
  • Calculate the transfer price from Division A to Division B.
  • Analyze the impact of transfer pricing on Division A's profitability.
  • Recommend a transfer pricing policy that maximizes overall corporate profitability.
  • Discuss the ethical considerations in setting transfer prices between divisions.
  • Evaluate the performance of each division under different transfer pricing scenarios.