Division S produces a component that is used by Division B. Division Ss costs of manufacturing the component is: Direct materials $30;Direct labor $8; Variable overhead $10; Fixed overhead $12 (based on a practical volume of 250,000 components). Division S also incurs these costs: fixed selling & administrative $1,200,000, and variable selling $4/unit. Division S expects to sell only 200,000 components next year. The variable selling expenses are avoidable if the component is sold internally. Division B has been buying the same component from an external supplier for $80 each. It expects to use 40,000 units of the component next year.

The manager of Division B has offered to buy 40,000 units from Division S for $56 each.

The maximum/minimum transfer price should be respectively:

a. $80/48 c. $48/48 b. $60/50 d. $38/30

Refer to question Suppose Divisions S and B agree on a transfer price of $56.

What is the benefit to each division respectively?

a. $320,000/$960,000 c. $960,000/$320,000 b. $1,280,000/$0 d. $0/$1,280,000