Melectron is a large electronics firm with multiple divisions. The Circuit Board Division manufactures circuit boards, which it sells to external customers as well as internally to other divisions. The Phone Division uses a circuit board in assembling cellular phones and sells the phones to external customers. Both divisions are evaluated as profit centers. The Circuit Board Division$$s external market price for the cellular phone circuit board is $$72$ and the variable cost of the circuit board is $$60.$The selling price of cellular phones is $$200,$ and the cost for the Phone Division to complete a phone $($not including the cost of the circuit board$)$ is $$125.$ The Phone Division can purchase the circuit board from an external supplier for $$70.$

Required:

a$.$ What range of transfer prices would the Circuit Board Division manager accept for internal transfers to the Phone Division $($answer assuming first that the Circuit Board division is operating sufficiently below full capacity and then answer assuming Curcuit Board Division is already operating at full capacity$)?$ What range of transfer prices would the Phone Division manager accept? Will the two managers likely make the exchange? Explain.

b$.$ Suppose the Circuit Board Division has sufficient excess capacity to manufacture the

circuit boards needed by the phone division.

$($i$)$ From the standpoint of Melectron $($the company$),$ should the circuit boards be produced and

transferred internally or purchased externally? Explain.

$($ii$)$ Recommend where the transfer price should be set to incentivize this behavior.

c$.$ Suppose instead the circuit board division has no excess capacity to manufacture the

circuit boards needed by the phone division.

$($i$)$ From the standpoint of Melectron $($the company$),$ should the circuit boards be

produced and transferred internally or purchased externally? Explain.

$($ii$)$ Recommend where the transfer price should be set to incentivize this behavior.