Company Q$.$ has two divisions, A and B that manufacture partial kits and completed baby strollers. Division A produces the tubular alloy stroller kits. Division B takes the tubular kits, adds materials and assembles a completed stroller. Both divisions have markets for their production output. The following information is available for each division. Transfer Pricing

Given: Company $Q.$ has two divisions, A and $B$ that manufacture partial kits and completed baby strollers.

Division A produces the tubular alloy stroller kits. Division B takes the tubular kits, adds materials and

assembles a completed stroller. Both divisions have markets for their production output. The

following information is available for each division.

Required:

If sales of Division $A$ to the intermediate market will take $2,000$ kits, what is the minimum transfer

price manufacturing can give to Division B for its surplus capacity?

Suppose Division A could increase the demand of the intermediate market to $2,500$ kits by

lowering the price to $$140$ per kit, what would Division $B$ have to pay if it wanted all $3,000$ units of

stroller alloy kits?

If sales to the intermediate market rose to $3,000$ kits at the $$140$ per kit, what would the

minimum transfer price per kit be to Division $B?$

Is it profitable to take the units from Division $A$ at any price and transfer them to Division $B$ if

Division A can sell its kits for $$150$ per kit? Show why this is or is not profitable.

Division A: Cost to manufacture tubular alloy kits $ $75\mathrm{.}00$

Selling price to intermediate market: $$150\mathrm{.}00$

Capacity per month: $3,000$ kits

Division B: Incremental cost of assembling stroller: $ $75\mathrm{.}00$

Selling price to customer: $$230\mathrm{.}00$

Capacity per month: $3,500$ strollers

Required:

$1.$ If sales of Division A to the intermediate market will take $2,000$ kits, what is the minimum transfer

price manufacturing can give to Division B for its surplus capacity?

$2.$ Suppose Division A could increase the demand of the intermediate market to $2,500$ kits by lowering the price to $$140$ per kit, what would Division B have to pay if it wanted all $3,000$ units of

stroller alloy kits?

$3.$If sales to the intermediate market rose to $3,000$ kits at the $$140$ per kit, what would the minimum transfer price per kit be to Division B$?$

$4.$ Is it profitable to take the units from Division A at any price and transfer them to Division B if

Division A can sell its kits for $$150$ per kit? Show why this is or is not profitable.