MBA Incorporated has two divisions, both evaluated as profit centers. The fabrication division transfers partially completed components to the assembly division at a predetermined transfer price. The fabrication divisions standard variable production cost per unit is $250 and its full (absorption) cost is $340 per unit. The fabrication division does not sell to any other customers. The transfer price to the assembly division has been set at $374, which is the fabrication divisions full cost plus a 10% markup. A customer has offered to purchase, from the assembly division, a special order of MBA Incorporateds product at a price of $425 per unit. The assembly division incurs variable costs of $100 in addition to the transfer price for the fabrication divisions components. Both divisions currently have excess production capacity and both divisions would remain under 90% utilization if MBA Incorporated accepts the special order. A. What is the assembly divisions manager likely to do regarding acceptance or rejection of the special offer? Why? B. How does this opportunity affect the cash flows of MBA Incorporated as a whole? C. Under what conditions is allowing the assembly division manager to make the decision in the best interests of the owners of MBA Incorporated? Problem 2 (50 Points) Color Corporation has the following operating income report for its two products. Magenta Ochre Total Sales $3,000 $1,000 $4,000 Variable costs 900 500 1,400 Contribution margin 2,100 500 2,600 Fixed costs 1,400 800 2,200 Operating income 700 (300) 400 Fixed costs consist of corporate headquarters overhead of $1,000 (allocated according to proportion of sales) and product-line-specific discretionary items (that is, costs associated with resources that could be eliminated if the product line did not exist). Assume there are intangible benefits associated with Product Ochre (say, some effect on our companys reputation). What is the minimum annual value of these benefits that would lead Color Corporation to choose to keep Product Ochre rather than eliminate it?