Question
BlueSky Corporation has two divisions: Division A, which produces components, and Division B, which assembles the final product. Division A currently sells components to Division
BlueSky Corporation has two divisions: Division A, which produces components, and Division B, which assembles the final product. Division A currently sells components to Division B at a transfer price of $50 per unit. Division B incurs additional variable costs of $30 per unit to complete the assembly process. If Division B can purchase similar components from an external supplier for $45 per unit, analyze the impact of changing the transfer price on the profitability of both divisions. Evaluate the implications for divisional performance evaluation and suggest an appropriate transfer price based on relevant factors.
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