Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 15,000 units of excess capacity. Selling Division currently sells the product for $40 per unit and Buying Division currently buys 15,000 units of the product from an outside source for $40 per unit. Variable costs of the product are $8, of which $2 is the cost of selling the product to an outside customer.

UsingSelling price less avoidable costsas the minimum price, fill in the following formula for the desired transfer price: _________

< transfer price < _________

.

UsingVariable costsas the minimum price, fill in the following formula for the desired transfer price: ___________________

< transfer price < $____________________

.

Assume there are no avoidable costs with an internal sale (variable costs equal $8) and that Buying Division buys 15,000 units from Selling Division. Complete the table for each transfer price:

Transfer Price Transfer Price

$35 $15

Increase in net income of Selling Division $ ________________ $__________________

Increase in net income of Buying Division $_________________ $___________________

Increase in net income of Overall Corporation $__________________ $___________________