QUESTION 2: Transfer Pricing Alberta Industrial Refrigeration Company (AIRC) has two divisions: Medicine Hat and Lethbridge. Medicine Hat currently sells a condenser to manufacturers of cooling systems for $480 per unit. Variable costs amount to $320, and demand for this product is currently at 100,000 units which is the division's production capacity. AIRC is considering another use for the condenser, namely, integration into an enhanced refrigeration system that would be made by the Lethbridge division. Related information about the enhanced system follows. . Selling price of enhanced refrigeration system: $1,495 . Additional variable manufacturing costs required, not including transfer price: $975 Estimated number of refrigeration system sales (each using one condenser): 20,000 units Top management is keen to introduce the enhanced system; however, unless the transfer is made, an introduction will not be possible because of the difficulty of obtaining condensers in the quality and quantity desired. The company uses responsibility accounting and ROI when measuring divisional performance, and awards bonuses to divisional management. Required 1. What is the minimum transfer price for the condenser being transferred from Medicine Hat to Lethbridge? 2. What is the maximum transfer price for the condenser being transferred from Medicine Hat to Lethbridge? 3. Suppose a transfer price is negotiated at $X, what is the incremental change to total operating income of the company