Alay Corporation has two divisions. The mining division makes toldine, which the then transferred to the metals division. The toldine is further processed by the metals division and is sold to customers at a price of $170 per unit. The mining division is currently required by Alay to transfer its total yearly output of 245,000 units of toldine to the metals division at 110% of full manufacturing cost. Unlimited quantities of toldine can be purchased and sold on the outside market at $85 per unit.

The following table gives the manufacturing cost per unit in the mining and metals divisions for 2014:

Mining Division		Metals Division
Direct material cost	$13		$14
Direct manufacturing labor cost	22		28
Manufacturing overhead cost	25	a	40	b
Total manufacturing cost per unit	$60		$82

aManufacturing overhead costs in the mining division are 20% fixed and 80% variable.

bManufacturing overhead costs in the metals division are 65% fixed and 35% variable.

Requirements (PLEASE ANSWER ALL THE BELOW):

1.	Calculate the operating incomes for the mining and metals divisions for the 245,000 units of toldine transferred under the following transfer-pricing methods: (a) market price and (b) 110% of full manufacturing cost.
2.	Suppose Alay rewards each division manager with a bonus, calculated as 3% of division operating income (if positive). What is the amount of bonus that will be paid to each division manager under the transfer-pricing methods in requirement 1? Which transfer-pricing method will each division manager prefer to use?
3.	What arguments would Bob Jones, manager of the mining division, make to support the transfer-pricing method that he prefers?