Assume that Division A has a product that can be sold either to Division B of the same company or to outside customers. The managers of both divisions are evaluated based on their own divisions return on investment (ROI). The managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.

Division A:

Capacity in units = 50,000

Number of units now being sold to outside customers = 50,000

Selling price per unit on the outside market = $98

Variable costs per unit = $63

Fixed costs per unit (based on capacity) = 18

Division B:

Number of units needed annually = 10,000

Purchase price now being paid to an outside supplier = $90

Division A can avoid $5 per unit in variable costs on any sales to Division B. Which one of the following statements is most correct regarding the division managers response to the opportunity for the internal transfer?

Group of answer choices

the managers will agree to a transfer at a price over $98

the managers will agree to a transfer at a price between $95 and $98

the managers will agree to a transfer at a price between $90 and $98

the managers will agree to a transfer at a price over $93

the managers will not agree to a transfer