Amazon.com, Inc. has two divisions, Books and Electronics. The following information is provided:
•Variable cost per unit in Electronics: $100
•Fixed cost per unit in Electronics: $50
•Selling price to external customers: $200
•Transfer price to Books: $150
Required:
1.Calculate the contribution margin for the Electronics division.
2.Determine the impact of the transfer price on the profitability of both divisions.
3.Discuss the benefits and challenges of transfer pricing within Amazon.