Santa Fe Company has two divisions in Kansas, Holton Division and Derby Division. Currently, Derby buys a part (10,000 units) from Holton for $16 per unit. Holton has purchased new equipment and wants to increase the price to Derby to $18 per unit. The controller of Derby claims that she cannot afford to go that high, as it will decrease the divisions profit to near zero. Derby can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Santa Fe incurs to produce each unit are Holtons variable costs of $12. Fixed costs per unit for Holton with recent purchase of equipment are $5.

1. Holton has no alternative uses for its facilities. Should Derby continue to (1) buy from Holton or (2) buy from the external supplier, from the point of view of? a. Company as a whole - b. Derby Division only -

2. If Santa Fe would prefer to negotiate a transfer price between the divisions, what range of transfer prices would be used?

3. If Holton could use its facilities for other manufacturing operations, that would result in monthly cash operating savings of $45,000. What would be the advantage (disadvantage) to Santa Fe to buy?

4. If Holton has no alternative uses for its facilities and the external supplier drops the price to $11 per unit, Should Derby continue to (1) buy from Holton or (2) buy from the external supplier, from the point of view of? a. Company as a whole - b. Derby Division only -

5. Assume the Derby Division is located in England rather than Kansas. The income tax rate used in England is 45%, whereas the effective income tax rate is 30% in Kansas. Which cost (e.g., full cost, variable cost, market price, or other) would be the best transfer price for the company as a whole based upon original data?

6. The seller of Product A has no idle capacity and can sell all it can produce at $20 per unit. Outlay cost is $4. What is the opportunity cost, assuming the seller sells internally? (1 point)