In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits: Division X: Capacity in units Number of units being sold to outside customers Selling price per unit to outside customers Variable costs per unit Fixed costs per unit (based on capacity) Division Y: Number of units needed for production Purchase price per unit now being paid to an outside supplier Case A B 290,000 290,000 290,000 262,000 $ 69 $ 52 $ 40 $ 29 $ 11 $ 9 $ 28,000 28,000 64 $ 51 ces Required: 1-a. Refer to the data in case A above. Assume that $2 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division. 11 W Transfer price $ 67 1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place? Yes No 2-a. Refer to the data in case B above In this case there will be no reduction in variable selling costs on intracompany sales. Determine the transfer price of the selling division. Transfer price < Prev 3 of 3 Next