G Company has two divisions: A Division and B Division. The A Division manufactures a single product, presently operates at 95 per cent of full capacity (100 000 units) and can sell all 95 000 units produced to outside customers. This product is also a component used in a product made by the B Division. A's full cost of production is $22.50 per unit, including $4.50 of applied fixed overhead costs. The applied fixed overhead is calculated based on production of 95 000 units. A's management believes that production can be raised to 100 000 units without affecting cost behaviour. A's selling price per unit is $30 with a 10 per cent sales commission on outside sales. B is presently negotiating the purchase of units from A. B can purchase a comparable component outside for $29.

a) What is the minimum acceptable transfer price for the first 5000 units from the viewpoint of A's management? Explain fully. (2 marks)

b) What is the maximum acceptable transfer price for the first 5000 units from the viewpoint of Bs management? Explain fully (2 marks)

c) What transfer price would make As managers indifferent between selling to B Division or to external parties? Explain fully. (2 marks)