McDonald Company has two divisions, Division C and Division D. Division C Manufactures Part C82 and sells it to Division D, and also sells the same part to the outside market for $58 per unit. Division C has capacity to make 925,000 units of C82 per year. The division's fixed costs are $3,500,000 per year and its variable costs per unit are as follows:

Division C

Direct materials 16$

Direct labor 22$

Variable overhead 5

Part C82 is an essential component for Division D's only product; the division sells 600,000 units per year at a price of $140 per unit. Division D's fixed costs are $2,000,000 per year and its variable costs per unit, excluding the cost of Part C82, are as follows:

Division D

Direct materials 13$

Direct labor 15

Variable overhead 13

Suppose Division C's demand for C82 from the outside market is currently 300,000 units per year. By how much will McDonald's income decrease if Division D purchases its desired 600,000 units of C82 at $58 per unit from the market rather than from Division C? If Division D purchases its desired 600,000 units of C82 at $58 per unit from the market rather than from Division C, McDonald's income will decrease by _______ $

What transfer price(s) would you suggest to induce both divisions to want Division D to purchase from Division C instead of from the market?

To induce an internal transfer, the transfer price should be: -

1. less than Division C's variable costs of $43.

2. greater than Division C's variable costs of $43 and less than Division D's cost to purchase C82 from the market of $58.

3. equal to Division D's variable costs of $41 plus a reasonable markup.

4. greater than Division D's variable costs of $41 plus allocated fixed costs.

Please Explain to me how to got the value of it . thank you,