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Please answer ABC Inc runs its two divisions as profit centers. Division A produces an aluminum hockey stick with the following financial and operations data:
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ABC Inc runs its two divisions as profit centers. Division A produces an aluminum hockey stick with the following financial and operations data: External Selling price per unit $75 Variable cost to produce a unit $40 Variable cost to sell a unit $5 Fixed costs per unit (based on $10 30,000 units capacity per year) Annual excess capacity 10,000 units Division B sells hockey set bundles and requires annually 20,000 hockey sticks from Division A. They presently buy them from a foreign supplier at $60 per unit that includes $5 per unit of overseas transportation costs. Requirements: Assume that the two divisions would not incur any selling or transportation costs if they transferred the component internally. 1. What is the minimum transfer price acceptable for Division A to sell the 20,000 hockey sticks to Division B? (1 mark) 2. What is the maximum transfer price acceptable to Division B? Do they have a deal? (1 mark) 3. List two qualitative factors that would make Division B not want to transact with Division A. Support your answer. (2 marks) 7 A B I iii III g cStep by Step Solution
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