Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow:

Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same.

Required:

a. Current output in Production is 25,250 units. Packaging requests an additional 5,800 units to produce a special order. What transfer price would you recommend?

b. Suppose Production is operating at full capacity. What transfer price would you recommend?

c. Suppose Production is operating at 47,600 units. What transfer price would you recommend?

Please answer A, B & C

a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production