Cascade Containers is organized into two divisions$-$Manufacturing and Distribution.

Manufacturing produces a product that can be sold immediately or transferred to

Distribution for further processing and then sold. Distribution only buys from Manufacturing

for quality control reasons.

Manufacturing currently sells $5,400$ units annually at a price of $$600$ per unit to outside

customers. It sells an additional $1,200$ units to Distribution. The unit variable cost in

Manufacturing is $$300$ and annual fixed costs are $$1,300,000.$ Manufacturing is located in a

country with a $20$ percent tax rate.

Distribution can sell units that have had further processing for $$1,700$ each. In addition to

what it pays Manufacturing, the variable costs in Distribution are $$150$ per unit. Annual fixed

costs in Distribution are $$460,000.$ Distribution is located in a country with a $10$ percent tax

rate.

Required:

a$.$ Suppose Manufacturing would have excess capacity even with the demand from

Distribution. Ignoring tax implications, what transfer price would you recommend

Cascade Containers adopt?

b$.$ What would be the total taxes Cascade Containers paid under the policy you

recommend in requirement $($a$)?$

c$.$ Suppose Manufacturing has no excess capacity. Ignoring tax implications, what transfer

price would you recommend Cascade Containers adopt?

d$.$ What would be the total taxes Cascade Containers paid under the policy you

recommend in requirement $($c$)?$