Jamal Manny is the CEO of CoolTime, a producer of premium ice cream. CoolTime has two divisions, the supplying division and the processing division.

i$.($Click the icon to view the additional information regarding the divisions.$)$

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Requirement $1.$ What is the profit for the supplying division of supplying $10$ gallons of milk to the processing division under Jamal's transfer pricing system? Do you think that the transfer pricing system incentivizes the managers of the supplying division to work hard, as Jamal intends?

What is the profit for the supplying division of supplying $10$ gallons of milk to the processing division under Jamal's transfer pricing system? Select the formula and enter the amounts to calculate the profit for the supplying division. $($Complete all input fields. Enter a $0$ for any zero balances.$)$

Do you think that the transfer pricing system incentivizes the managers of the supplying division to work hard, as Jamal intends?

The transfer pricing system incentivize the managers of the supplying division to work hard, as Jamal intends.

under the transfer pricing system.

Requirement $2.$ In the back of Jamal's mind is that one of the larger competitors may be interested in buying only one of the divisions, and not his entire company. He is patting himself on the back for choosing the transfer pricing system since, in his view, it makes the profitability of each of the two divisions look very good. Do you agree with Jamal?

As calculated in $1.$ Above, under the transfer pricing system. The profit of the processing division under the transfer pricing system is it would be if the processing division was charged a

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The supplying division supplies milk, the main ingredient, to the processing division. Jamal is an ambitious entrepreneur, and he is hoping to soon sell CoolTime, which is a private company, to one of the larger competitors. The supplying division buys milk from local farmers for $$3$ per $10$ gallons, and incurs $$2$ of variable costs per $10$ gallons transported to the processing division $($the supplying division doesn't incur any material fixed costs$).$ The processing division could buy milk of the same high quality for $$8$ per $10$ gallons on the outside market. Jamal is trying to "whip his company into shape" by implementing a transfer pricing system that he views as providing very strong incentives for the two divisions to work hard: The supplying division will get reimbursed for its incremental costs of supplying the milk to the processing division; the processing division is charged the price that it would have to pay on the open market.