Metal Division < Congratulations! You have just been appointed manager of the Titan Industry Ltd. Metal Division. Your annual bonus is an important part of your compensation and is tied to your total divisional income. Your CEO currently is deciding on a transfer pricing policy affecting your income, and will soon communicate this to you. In keeping with maximum autonomy, each division may enter transactions with outsiders or insiders as it sees fit. However, when an internal transaction occurs, the price must follow guidelines that headquarters sets. It is these guidelines that the CEO is now considering. < Here are the possibilities that s/he is considering: < Market-based: actual competitive prices that the buyer would have to pay outsiders, less 3% to adjust for the economies of dealing internally (less sales effort, no bad debts, etc.). < Cost-based: actual full manufacturing cost. < Negotiated: whatever price they can agree on. < Dual: The selling division receives 110% of its full manufacturing costs. The buying division pays 97% x (the market price they would pay outsiders). < Check the one that your CEO communicates to you. < + OK! Now you are ready to negotiate with the other divisions. < H First, you need to purchase some equipment cases, either from the Plastics Division or from an outside source. You have a bid from a reliable outside supplier who will provide the 5,000 units per month that you need for $120 each. You also should consider buying them from the Plastics Division, with the price to be determined in accordance with your CEO's new transfer price policy. < Please note the result of your negotiation below: < We completed the deal internally at $- We could not complete a deal internally . < -/unit. < Comments on your rationale and other observations: < Second, the Electronics Division needs 8,000 brackets of an unusual design. Your costs to make and deliver these would be: < Direct Material < Direct Labor Variable Overhead < Fixed Overhead < Total < $ 25,00 < 8,00 < 23,00 < 25,00 < $ 81,00 < L FV