Lola Metals has two decentralized divisions, Stamping and Finishing. Finishing always has purchased certain units from Stamping at $$47$ per unit. Stamping plans to raise the price to $$59$ per unit, the price it receives from outside customers. As a result, Finishing is considering buying these units from outside suppliers for $$47$ per unit. Corporate policy allows division managers to choose both customers and suppliers regardless of the transfer price. Stamping's costs follow:

Variable costs per unit

$$45$

Annual fixed costs

$$62,200$

Annual production of these units sold to Alpha

$29,200$ units

Required:

a$.$ If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $$59$ per unit between Stamping and Finishing?

b$.$ Suppose Lola Metals enforces a transfer price of $$47$ and insists that Stamping sell to Finishing before selling to outside customers: Stamping currently operates at capacity and can easily sell on the outside market the units it sells to Finishing. What cost will Lola Metals incur as a result of this policy?

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If Finishing buys from an outside supplier, the facilities that Stamping uses to produce these units will remain idle. What will be the impact on corporate profits if Lola Metals enforces a transfer price of $$59$ per unit between Stamping and Finishing

Lola Metal's contribution margin would

increase