Managerial Accounting 3 (c)

c) In each of the case 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 division are evaluated based on their divisional profits. Case Division X: A B Capacity in units 200,000 200,000 Number of units being sold to outside customers 200,000 160,000 Selling price per unit to outside customers $90 $75 Variable costs per unit $70 $60 Fixed costs per unit( based on capacity) $13 $8 Division Y: Number of units needed for production 40,000 40,000 Purchase price per unit now being paid to an outside supplier $86 $74 Required: i) Refer to the data in case A above, assume in this case that $3 per unit in variable selling costs can be avoided on intra-company sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range the transfer price will fall? Explain. ii) Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intra-company sales. If the managers are free to negotiate and make decisions on their own, will a transfer take place? If so, within what range will the transfer price fall? Explain