In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.

		Case
		A	B
Division X:
Capacity in units		100,000	109,000
Number of units being sold to outside customers		100,000	88,000
Selling price per unit to outside customers		$58	$34
Variable costs per unit		$26	$13
Fixed costs per unit (based on capacity)		$6	$6
Division Y:
Number of units needed for production		21,000	21,000
Purchase price per unit now being paid to an outside supplier		$50	$26
1-a.	Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany sales.

1-b.

If the managers are free to negotiate and make decisions on their own, will a transfer take place?

	No
	Yes

2-a.

Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division.

2-b.

If the managers are free to negotiate and make decisions on their own, will a transfer take place?

	Yes
	No

2-c.	What is the range of transfer price the managers of both divisions should agree?