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ABC Manufacturing Co. has two divisions: Division A and Division B. Division A produces a component that Division B uses in its final product. Division
ABC Manufacturing Co. has two divisions: Division A and Division B. Division A produces a component that Division B uses in its final product. Division A incurs variable costs of $20 per unit and fixed costs of $10,000 per month to produce the component. Division B is willing to pay up to $40 per unit for the component. Analyze the transfer pricing options, considering market-based, cost-based, and negotiated transfer prices, and discuss the implications for divisional performance evaluation.
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