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 for 2017 are as follows: To the Assembly To Outside Division Customers Total Sales 400,000 parts x $6.00 $2,400,000 300,000 parts x $6.50 $1,950,000 $4,350,000 Variables expenses at $3.00 (1,200,000) (900,000) (2,100,000) Fixed expenses* Contribution margin Net income 1,200,000 1,050,000 2,250,000 (700,000) $ 500,000 (525,000) (1,225,000) $525,000 $1,025,000 *Allocated on the basis of unit sales. The Assembly Division has just received an offer from an outside supplier to supply parts at $4.50 each. The Foundry Division manager is not willing to meet the $4.50 price. She argues that it costs her $4.75 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 $4.75 unit cost figure. Variable costs $ Fixed costs Total unit cost $ 3 1.75 4.75 c. Could the Foundry Division meet the $4.50 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 $4.50 price Sales Variable costs Contribution margin $ 180,000 x 1,200,000 600,000 Fixed costs 700,000 Net profit (loss) $ (100,000)