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Sandpiper Company is a computer manufacturer and has two divisions. Division A (which is operating at capacity) makes a specialized chip called A55 and has

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Sandpiper Company is a computer manufacturer and has two divisions. Division A (which is operating at capacity) makes a specialized chip called A55 and has the following financial information Price for outside customers $21.00 per unit Variable cost $12.50 per unit Fixed cost $2.50 per unit Sales 15,000 units Division B developed a new product called B101. The new product needs to use A55 as a component part that cannot be purchased from outside. In addition to using one unit of Ass for each B101, other cost information for each B101 is provided below. Other parts (purchased from outside vendors) $70.75 per unit Allocated common fixed costs $16.00 per unit Proposed transfer price $13.00 for each A55 21 The manager of Division B feels that to successfully market B101 she can't quote a price greater than $100 per unit. To keep the price at $100 or less, she can't pay more than the above proposed price for each A55 to Division A. Suppose the total demand for the new product is expected to reach 15,000 units. Division A does not think the proposed price for A5S is high enough to cover their cost. If the two divisions do not agree on a transfer price and the transfer does not take place, then how much will the whole company's profitability increase or decrease? A. Increase by $ 123,750 B. Decrease by $ 123,750 C. Increase by $ 127,500 D. Decrease by $ 127,500 E. None of the above

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