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ssume a company has two divisions, Division A and Division B . Division A has provided the following information regarding the one product that it
ssume a company has two divisions, Division A and Division B Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:
Selling price per unit on the outside market $
Variable cost per unit $
Fixed costs per unit based on capacity $
Capacity in units
Division B could use Division As product as a component part in the manufacture of units of its own newlydesigned product. Division B has received a quote of $ from an outside supplier for a component part that is comparable to the one that Division A makes.
Also assume that the companys divisional managers are evaluated based on their divisions profits and that Division A is currently selling units on the outside market. If the managers of the two divisions do not agree on a transfer price and Division B purchases component parts from an outside supplier, what would be the effect on the companys profits?
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