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

Division A

Capacity in units = 100,000

Number of units now being sold out to outside customers = 750,000

Selling price per unit on the outside market = $60

Variable costs per unit = $35

Fixed costs per unit = $17

Division B

# of units needed annually = 20,000

Purchase price now being paid to outside supplier = $60

Will the division managers agree to transfer and if so, within what range will the transfer be?

the manager will agree to transfer at a price between $52 - $57

the manager will agree to transfer at a price between $52 - $60

the manager will agree to transfer at a price between $35 - $60

the manager will not agree to a transfer

the manager will agree to transfer at a price between $35 - $38