Salfer Enterprises runs a chain of drive-in ice cream stands in Henderson during the summer season. Managers of all stands are told to act as if they owned the stand and are judged on their profit performance. Salfer Enterprises has rented an ice cream machine for the summer for $3,500 to supply its stands with ice cream. Salfer is not allowed to sell ice cream to other dealers because it cannot obtain a dairy license. The manager of the ice cream machine charges the stands $3 per gallon. Operating figures for the machine for the summer are as follows: (Click the icon to view the data and additional information.) Requirement 1. Cameron wants an analysis of the request in terms of overall company objectives and an explanation of your conclusion. What is the appropriate transfer price? Prepare the analysis of the request in terms of overall company objectives. Begin by calculating the operating margin including the sales to Charlotte at $2.30. Then, repeat your calculations assuming that Salfer do not sell ice cream to Charlotte. Including sales to Charlotte Sales Variable costs Contribution margin Fixed costs Operating margin Drive-In Data table Sales to the stands (17,900 gallons at $3) Variable costs, at $1.90 per gallon $ 53,700 $ 34,010 Fixed costs Rental of machine Other fixed costs Operating margin 3,500 11,000 48,510 $ 5,190 The manager of the Charlotte Drive-In, one of the Salfer drive-ins, is seeking permission to sign a contract to buy ice cream from an outside supplier at $2.30 a gallon. The Charlotte Drive-In uses 4,400 gallons of ice cream during the summer. Evelyn Cameron, controller of Salfer, refers this request to you. You determine that the other fixed costs of operating the machine will decrease by $1,400 if the Charlotte Drive-In purchases from an outside supplier.