Example 1. Division A makes a subassembly (part) that can be used by division B. The divisions' costs are as follows: A: VC of mfg = $40 per unit Variable sales commission of $4 per unit (sales outside the firm only) FC of mfg averages $5/unit (but total FC are fixed) Selling price for the product is $60 B: Selling price for the product is $150 Variable mfg costs (other than the part) = $91 Assume no FC or S&A costs Transfer pricing (to) policies to consider: 1. 130% of total mfg. costs 2. 120% of variable mfg costs 3. market price Mgrs in this firm have the authority to choose their trading partners. (a) For each to policy, set the tp and determine what the mgrs will do. (b) Determine what is best for the firm