Requirements Data table 1. Should transfers be made to division B if there is no unused capacity in division A? Is the market price the correct transfer price? Show your computations. 2. Assume that division A's maximum capacity for this product is 1,500 units per month and sales to the intermediate market are now 1,000 units. Assume that for a variety of reasons, division A will maintain the $225 selling price indefinitely. That is, division A is not considering lowering the price to outsiders even if idle capacity exists. Should 500 units be transferred to division B ? At what transfer price? 3. Suppose division A quoted a transfer price of $180 for up to 500 units. What would be the contribution to the company as a whole if a transfer were made? As manager of division B, would you be inclined to buy at $180 ? Explain. 4. Suppose the manager of division A has the option of (a) cutting the external price to $220, with the certainty that sales will rise to 1,500 units, or (b) maintaining the external price of $225 for the 1,000 units and transferring the 500 units to division B at a price that would produce the same operating income for division A. What transfer price would produce the same operating income for division A? Is that price consistent with that recommended by the general guideline so that the resulting decision would be desirable for the company as a whole? Should transfers be made to division B if there is no unused capacity in division A ? No Select the formula you will use to calculate the correct transfer price. Is the market price the correct transfer price? not considering lowering the price to outsiders even if idle capacity exists. Should 500 units be transferred to division B? At what transfer price? Should 500 units be transferred to division B? At what transfer price? As manager of division B, would you be inclined to buy at $180 ? Requirement 1A: Incremental cost Incremental revenue Selling price for final product Selling Price for intermediate product Yes/No Requirement 1B: Incremental cost per unit Market price for unit Opportunity cost per unit Yes/No Requirement 2: Yes, 500 units should be transferred to division B at a price of $320 Yes, 500 units should be transferred to division B at a price of 225 Yes, 500 units should be transferred to division B at a price between $130 and $180 Yes, 500 units should be transferred to division B at a price between $130 and $320. No, 500 units should not be transferred to division B. Requirement 3: Yes, they are making a profit and therefore this will benefit their division. No, division B has $0 contribution at the $180 price and would have little incentive to buy No, they will have a loss and the division will not accept operating at a loss Requirement 4: Incremental cost per unit Market price for unit Opportunity cost per unit Is/is not A perfectly competitive market for the intermediate product exists. An intermediate market exists that is not perfectly competitive. No market exists for the intermediate product