Clinton Corporation has two decentralized divisions, Alpha and Beta. Alpha always has purchased certain units from Beta at $97 per unit. Beta plans to raise the price to $130 per unit, the price it receives from outside customers. As a result, Alpha is considering buying these units from outside suppliers for $97 per unit. Betas costs follow:

Variable costs per unit	$	91
Annual fixed costs	$	160,000
Annual production of these units sold to Alpha		14,000	units

Required:

a. If Alpha buys from an outside supplier, the facilities that Beta uses to manufacture these units will remain idle. What will be the result if Clinton enforces a transfer price of $130 per unit between Alpha and Beta?

contribution martin: decreased/increased? amount?

b. Suppose Clinton enforces a transfer price of $97 and insists that Beta sell to Alpha before selling to outside customers. Beta currently operates at capacity and can easily sell the units it sells to Alpha on the outside market. What cost will Clinton incur as a result of this policy?

Cost :