Horizon makes amateur drones, and it has two US based divisions. Division A makes drone kit. Division B assembles and configures drone. A new model of drone has been developed of which Horizon will sell for $580 each. Horizon is planning to let Division B to produce 1,200 units of fully assembled drone using its idle capacity. Division B purchases the drone kit from Division A. The company has a policy that internal transfers are priced at their fully allocated costs. Assume that the variable cost and allocated fixed cost for each set of drone kit at Division A are $215 and $100, respectively. Also assume that the assembling and administrative variable costs for each unit of drone at Division B are $195 and $80 (both are variable costs), respectively. (1) Assume that Division A has the capacity of producing 1,200 sets of drone kit for Division B. Division B has the capacity to assemble, configure and sell the 1,200 units of fully assembled drones. Should Division B purchase the drone kits from Division A and produce the fully assembled drones? (2) Assume that Division A has the idle capacity for the 1,200 drone kits. Would the company as a whole benefit if Division B decides to purchase the drone kits from Division A and assemble the drones (hint: the fixed cost in Division A is unavoidable)? (3) Assume that the allocated fixed cost for each unit of drone at Division B is $80. The 1,200 units of drone are produced using the drone kits from Division A for the companys EU sales division, which sells the drones for $750 each. Suppose the EU and US governments allow either the variable or fully allocated cost to be used as a transfer price. The US income tax is 32%, the EU income tax is 55%, and the import duty to EU is 14%. Which price should Horizon use to minimize the total of income taxes and import duties? Compute the saving from your choice of transfer price versus the other. (4) If EU has passed a new law decreasing the income tax rate to 40% and increasing the import duty to 20%, what would be the choice of transfer price in (3)?