QUESTION 1 VisBright manufactures and sells televisions. The company's upstream division, Chip Division, builds chips that are placed behind screens to control the image displayed. Chip Division sells chips to VisBright's downstream division, Screen Division, at a transfer price that the two divisions negotiate. Screen Division can also buy chips on the external market for $30 per chip. Screen Division produces screens and connects a single chip to cach screen in order to produce a completed devision Chip Division's costs par chip are as follows: Direct Materials of $8 Direct Labour of SS Variable Overhead of S7 Screen Division's costs per screen are as follows: Direct Materials of $11 Direct Labour of $2 Variable Overhead of $5 The fixed costs of Chip Division are $400,000 and the fixed costs of Screen Division are $2,000,000, Capacity at these fixed costs are 200,000 chips and 200,000 screens. REQUIRED: Question l-A: If the transfer price of a chip is negotiated to be 140% of variable costs, and if Chip Division sells 100,000 chips to Screen Division, what is Chip Division's operating income? 16 marks Question 1-B: If Screen Division obtains all of its chips from Chip Division and sells 100,000 televisions to retailers at a market price of $80, what is the operating income of Vis Bright? 16 marks Question 1-C: If Chip Division has excess capacity to produce 100,000 chips which it cannot sell externally, must it be willing to sell to Screen Division for a transfer price below $30 per chip? Explain 13 marks Question I-D: If the transfer price of a chip is negotiated to be 140% of full costs, and if the market price of a television falls to $45 before Vis-Bright reaches its capacity level of production, should VisBright use any excess capacity to sell televisions? Would Screen Division want to continue to sell televisions in this scenario? 15 marks Question l-E: Calculate and compare the difference in overall corporate operating income between Scenario A and Scenario B if the Screen Division sells 100,000 televisions to retailers for S80 per television Scenario A: Negotiated transfer price of S21 par chip. Scenario B: Market-based transfer price of $30 per chip. 15 marks] Total: 25 marks! QUESTION 2