MBR Inc. consists of three divisions that were formerly three independent manufacturing companies. Bader Corporation and Roper Company merged in 2016, and the merged corporation acquired Mitchell Company in 2017. The name of the corporation was subsequently changed to MBR Inc., and each company became a separate division retaining the name of its former company. The three divisions have operated as if they were still independent companies. Each division has its own sales force and production facilities. Each division management is responsible for sales, cost of operations, acquisition and financing of divisional assets, and working capital management. The corporate management of MBR evaluates the performance of the divisions and division management on the basis of return on investment. Mitchell Division has just been awarded a contract for a product that uses a component manufactured by the Roper Division and also by outside suppliers. Mitchell used a cost figure of $3.80 for the component manufactured by Roper in preparing its bid for the new product. Roper supplied this cost figure in response to Mitchell's request for the average variable cost of the component; it represents the standard variable manufacturing cost and variable selling and distribution expenses. Roper has an active sales force that is continually new prospects. Roper's regular selling price for the component Mitchell needs for the new product is $6.50. Sales of this component are expected to increase. The Roper management has indicated, however, that it could supply Mitchell the required quantities of the component at the regular selling price less variable selling and distribution expenses. Mitchell's management has responded by offering to pay standard variable manufacturing cost plus 20 percent. The two divisions have been unable to agree on a transfer price. Corporate management has never established a transfer-pricing policy because interdivisional transactions have never occurred. As a compromise, the corporate vice president of finance suggested a price equal to the standard full manufacturing cost (i.e., no selling and distribution expenses) plus a 15 percent markup. The two division managers have also rejected this price because each considered it grossly unfair. The unit cost structure for the Roper component and the three suggested prices follow. Standard variable manufacturing cost. Standard fixed manufacturing cost Variable selling and distribution expenses. $3.20 1.20 0.60 $5.00 Regular selling price less variable selling and distribution expenses ($6.50 - $0.60). .. $5.90 Standard full manufacturing cost plus 15% ($4.40 X 1.15).. $5.06 Variable manufacturing plus 20% ($3.20 x 1.20).. $3.84 Required a. What should be the attitude of the Roper Division's management toward the three proposed prices? b. Is the negotiation of a price between the Mitchell and Roper Divisions a satisfactory method of solving the transfer-pricing problem? Explain your answer. c. Should the corporate management of MBR Inc. become involved in this transfer-price controversy? Explain your answer. MBR Inc. consists of three divisions that were formerly three independent manufacturing companies. Bader Corporation and Roper Company merged in 2016, and the merged corporation acquired Mitchell Company in 2017. The name of the corporation was subsequently changed to MBR Inc., and each company became a separate division retaining the name of its former company. The three divisions have operated as if they were still independent companies. Each division has its own sales force and production facilities. Each division management is responsible for sales, cost of operations, acquisition and financing of divisional assets, and working capital management. The corporate management of MBR evaluates the performance of the divisions and division management on the basis of return on investment. Mitchell Division has just been awarded a contract for a product that uses a component manufactured by the Roper Division and also by outside suppliers. Mitchell used a cost figure of $3.80 for the component manufactured by Roper in preparing its bid for the new product. Roper supplied this cost figure in response to Mitchell's request for the average variable cost of the component; it represents the standard variable manufacturing cost and variable selling and distribution expenses. Roper has an active sales force that is continually new prospects. Roper's regular selling price for the component Mitchell needs for the new product is $6.50. Sales of this component are expected to increase. The Roper management has indicated, however, that it could supply Mitchell the required quantities of the component at the regular selling price less variable selling and distribution expenses. Mitchell's management has responded by offering to pay standard variable manufacturing cost plus 20 percent. The two divisions have been unable to agree on a transfer price. Corporate management has never established a transfer-pricing policy because interdivisional transactions have never occurred. As a compromise, the corporate vice president of finance suggested a price equal to the standard full manufacturing cost (i.e., no selling and distribution expenses) plus a 15 percent markup. The two division managers have also rejected this price because each considered it grossly unfair. The unit cost structure for the Roper component and the three suggested prices follow. Standard variable manufacturing cost. Standard fixed manufacturing cost Variable selling and distribution expenses. $3.20 1.20 0.60 $5.00 Regular selling price less variable selling and distribution expenses ($6.50 - $0.60). .. $5.90 Standard full manufacturing cost plus 15% ($4.40 X 1.15).. $5.06 Variable manufacturing plus 20% ($3.20 x 1.20).. $3.84 Required a. What should be the attitude of the Roper Division's management toward the three proposed prices? b. Is the negotiation of a price between the Mitchell and Roper Divisions a satisfactory method of solving the transfer-pricing problem? Explain your answer. c. Should the corporate management of MBR Inc. become involved in this transfer-price controversy? Explain your