Negotiating a Transfer Price with Excess Capacity The Foundry Division of Findlay Pumps Inc. produces metal parts that are sold to the company's Assembly Division and to outside customers. Operating data for the Foundry Division are as follows:

	To the Assembly Division	To Outside Customers	Total
Sales
400,000 parts x $6.50	$2,600,000
300,000 parts x $7.10		$2,130,000	$4,730,000
Variables expenses at $3.60	(1,440,000)	(1,080,000)	(2,520,000)
Contribution margin	1,160,000	1,050,000	2,210,000
Fixed expenses*	(700,000)	(525,000)	(1,225,000)
Net income	$ 460,000	$ 525,000	$985,000
*Allocated on the basis of unit sales.

The Assembly Division has just received an offer from an outside supplier to supply parts at $5.15 each. The Foundry Division manager is not willing to meet the $5.15 price. She argues that it costs her $5.35 per part to produce and sell to the Assembly Division, so she would show no profits on the Assembly Division sales. Sales to outside customers are at a maximum, 300,000 parts.

a. Verify the Foundry Division's $5.35 unit cost figure.

Variable costs	Answer
Fixed costs	Answer
Total unit cost	Answer

b. Could the Foundry Division meet the $5.15 price and still show a net profit for sales to the Assembly Division? Show computations.

Use a negative sign only to indicate a net loss. Otherwise do not use negative signs with your answers.

Sales to Assembly Division at $5.15 price
Sales	Answer
Variable costs	Answer
Contribution margin	Answer
Fixed costs	Answer
Net profit (loss)	Answer