Memories, Inc. has decided to create a wholly owned subsidiary, Memories Boutique, Inc., (MBI) to sell the figurines directly to the public. In the store dolls will sell for $10.00 each and replicas for $11.50. The intent is for the boutique to buy the figurines directly from Memories, Inc. at the wholesale prices. Assume that MI has excess capacity and can supply the figurines to MBI without impacting their current sales. The manager of MBI has now found an unrelated supplier that will provide dolls for $4.55 and replicas for $5.75.

A. Using estimated cost data for Year 3 (given in Part Eight), at what minimum price should MI agree to transfer dolls and replicas to MBI?

B. What is the maximum price that MBI should be willing to pay MI for the figurines?

C. If MBI purchases figurines from MI, what is the ideal transfer price? Why?

D. Should MBI buy figurines from MI or from the outside supplier? (Don't forget that MBI is a wholly owned subsidiary.) What qualitative factors should be considered in making this decision?

E. Answer questions A through D again assuming MI is operating at full capacity.