RaceFest Inc. has two operating divisions. The Ski Division makes water and snow skis, and the Binding Division makes rubber boots for water skis. The Binding Division estimates that 800,000 pairs of boots will be produced in 2010; of those, 600,000 pairs will be sold to the Ski Division and 200,000 pairs will be sold externally. Managers of the two divisions are in the process of determining a transfer price for a pair of boots. The following information for the Binding Division is available: Direct material $27 Direct labor 12. Variable overhead 7 Variable S&A (both for external and internal sales) 4 Total variable cost $50 Fixed overhead (rate based on estimated annual production) $10 Fixed selling and administrative (rate based on estimated annual sales) 5 Total fixed cost 15 Total cost per pair of boots $65 Markup on total variable cost (40%) 20 List price to external customers $85 Required: a. Determine a transfer price based on variable production cost. b. Determine a transfer price based on total variable production cost plus normal markup. c. Determine a transfer price based on full production cost. d. Determine a transfer price based on total cost per pair of boots. e. Prepare the journal entries for the Binding (selling) and Ski (buying) segments if the transfer is made at the external selling price for the selling division and the full production cost for the buying division. f. Assume that the Binding Division has no alternative use for the facilities that make the rubber boots for internal transfer. Also assume that the Ski Division can buy equivalent boots externally for $80. Calculate the upper and lower limits for which the transfer price should be set. g. Compute a transfer price that divides the profit between the two divisions equally. h. In contrast to the assumption in part (f), assume that a large portion of the facilities in which boots are produced can be rented for $600,000 if the Binding Division makes boots only for external sale. Determine the lower limit of the transfer price