Grow Accounting and Business Services has two divisions, Computer Services and Management Advisory Services.

Both divisions work for external customers and, in addition, work for each other, as illustrated above.

• Fees earned by Computer Services from external customers were $520000 in 2020.
• Fees earned by Management Advisory Services from external customers were $680000 in 2020.
• Computer Services worked 2 800 hours for Management Advisory Services last year, and Management Advisory Services worked 1600 hours for Computer Services.
• The total costs of external services performed by Computer Services were $220000, and for Management Advisory Services costs were $480000.

Required:

A.Determine the operating income for each division and for the company as a whole if the transfer price from Computer Services to Management Advisory Services is $45 per hour and the transfer price from Management Advisory Services to Computer Services is $60 per hour.

B.The manager of Computer Services has found another company willing to provide the same services as Management Advisory Services at $50 per hour. All of the employees in both units are guaranteed 40-hour work weeks. Currently, Management Advisory Services has idle capacity because of an economic downturn. Calculate the change in operating income for the entity as a whole if Computer Services uses outsourced services instead of using Management Advisory Services.

C.Recommend a transfer price policy that would provide incentives to use the internal services. Explain your recommendation.