Electronics is a division of International Motors, an automobile manufacturer. Electronics produces car radio/CD players. It sells its products to International Motors and to other car manufacturers and electronic distributors. The following information is for the car radio/CD player:

Selling price of car radio/CD to external customers$49

Variable cost per unit$28

Capacity200,000 units

Required:

Determine whether the goods should be transferred internally or purchased externally and what the appropriate transfer price should be under each of the following independent situations:

1.Electronics is operating at full capacity. There is a saving of $4 per radio/CD player unit invariable costs if the car is produced for internal sale. Internal Motors can purchase a similar car radio/CD player from an outside supplier for $47.

2.Electronics has enough capacity to satisfy the needs of International Motors. International Motors can purchase a similar car radio from an outside supplier for $47.

3.International Motors wants to purchase a special-order car radio/CD player that also includes an MP3 player. International Motors requires 15,000 units.

Electronics has determined that the additional variable cost to produce a car/radio with an MP3 player would be $12 per unit. Electronics has no unused capacity. Electronics will lose sales of 15,000 radio/CD player units to external parties in order to complete this special order.