In each of the coses below, sssume that Division $x$ has o product that can be sold either to outside customers or to Division $Y$ of the

some compony for use in its production process. The monogers of the divisions are evolusted bssed 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 $($bosed on capacity$)$

Division $Y$ :

Number of units needed for production

Purchase price per unit now being paid to an outside supplier

Required:

$1-$a$.$ Refer to the doto in cose A sbove. Assume that $$2$ per unit in vorioble selling costs con be ovoided on introcompony soles.

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 doto in cose B above. In this cose there will be no reduction in varioble selling costs on intracompany sales.

Determine the transfer price of the selling division.

Transfer price

$2-$b$.$ If the mansgers are free to negotiste and make decisions on their own, will a transfer take place?

Yes

No

$2-$c$.$ What is the ronge of transfer price the mansgers of both divisions should agree?