Question 2 The Glass division of Glazex Inc. produces glass that can be widely used by manufacturers of various products. Sales and cost data on the glass are as follows: Selling price per unit on the market Variable costs per unit Fixed costs (based on capacity) Annual production capacity in units 240 168 32 100,000 The Windows division of Glazex Inc. can use the glass in the production of one of its products. The Windows division will need 10,000 glasses per year. It has received a quote of 228 per glass from another manufacturer. Managers of Glazex Inc. are evaluated based on divisional profits. REQUIRED: (a) Discuss the concept of 'transfer pricing'. Outline and explain the transfer-pricing rule that can foster goal congruent decisions. Determine what would be the optimal transfer price under: (i) excess capacity and (ii) no excess capacity. Use examples to illustrate your answer wherever possible. (12 marks) (b) Assume that the Glass division is selling all the glasses it produces to external customers. (i) From the standpoint of the Glass division, what is the lowest acceptable transfer price for glasses sold to the Windows division? (2 marks) (ii) From the standpoint of the Windows division, what is the highest acceptable transfer price for glasses purchased from the Glass division? (2 marks) (iii) From the standpoint of the entire company, should the transfer take place? Why or why not? (3 marks)