For the following questions (1-3) about transfer pricing, assume the organization is X Co. Division S produces a component that can be sold to outside customers at a fair market price or to Division B at a transfer price. Division B uses the component to produce a finished product it sells to outside customers. Division B can also purchase the component from an outside supplier, Co. O at a fair market price. 1. Division S produces a component that is used by Division B. Division S's costs of manufacturing the component is: Direct materials $30Direct 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 2. Refer to question 8. 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 3*Refer to question 8. If S is at full capacity, the transfer price should be: a. Between $30 and $80 C. $30 b. $80 d. $60