Athena Company has two divisions. Spartan Division, which has operating assets of $80,000,000 produces and sells 900,000 units of a product at a market price of $140 per unit. Variable costs total $40 per unit. The division also assigns $70 of fixed costs to each unit based on total capacity of 1,000,000 units.

Trojan Division wants to purchase 200,000 units from Spartan. However, it is only willing to pay $80 per unit because it has an opportunity to accept a special order at a reduced price. The order is economically justifiable only if Trojan Division can acquire Spartan Divisions output at a reduced price.

Athena Companys cost of capital is 15%.

Required:

1) What is the sales revenue at this transfer price?

2) If Spartan Division had no capacity constraints, what is the minimum transfer price it could accept on the order from Trojan Division? Explain your answer.

3) If Spartan Division could sell all units produced to the outside market, what transfer price would you recommend? Why?