MBS is organized into two divisions—Fabrication and Marketing. Fabrication produces a product that can be sold immediately or transferred to Marketing for customization and then sold. Marketing only buys from Fabrication for quality control reasons.

Fabrication currently sells 32,000 units annually at a price of $200 per unit to outside customers. It sells an additional 22,000 units to Marketing. The unit variable cost in Fabrication is $100 and annual fixed costs are $1.6 million. Fabrication is located in a country with a 30 percent tax rate.

Marketing can sell customized units for $520 each. In addition to what it pays Fabrication, the variable costs in Marketing are $110 per unit. Annual fixed costs in Marketing are $3.6 million. Marketing is located in a country with a 20 percent tax rate.

Required:

a. Suppose Fabrication would have excess capacity even with the demand from Marketing. Ignoring tax implications, what transfer price would you recommend MBS adopt?

b. What would be the total taxes MBS paid under the policy you recommend in requirement ( a )? (Enter your answers in dollars and not in millions of dollars.)

c. Suppose Fabrication has no excess capacity. Ignoring tax implications, what transfer price would you recommend MBS adopt?

d. What would be the total taxes MBS paid under the policy you recommend in requirement ( c )? (Enter your answers in dollars and not in millions of dollars.)