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:

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.

Transfer price

$1-$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

$2-$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?