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Question 10 15 pts Transfer Pricing Parti(15 Points) Lafayette Inc. makes all types of office desks. The General Desk Division is currently producing and selling 10.000 desks (called General Desk) per year, which is the yearly demand for this type of desk. The General Desk Division has a capacity of 15,000 desks. The variable costs assigned to each desk are $200. The General desk sells to the outside market at a price of $310 per desk, after incurring $10 per desk of transportation cost. The Executive Division wants to buy 5,000 General desks for its custom office design business. Executive Division buys either all 5000 desks from General Division or none. Suppose the Executive Division can sell the desks in the outside market at a price of $330 per desk after incurring additional costs of $100 per desk. Suppose each division wishes to maximize its division profits. 1. If the Executive Division wants to buy 5,000 General desks at $180, is it optimal for the General Desk Division to accept the order from the Executive Division at $180? (Yes or No) Please explain why or why not. How much would the General Desk Division gain or lose from this order? (4 points) 2. From the perspective of the company (as a whole), should the order be accepted? (Yes or No) Explain why or why not. How would firm-wide profits change when the transaction occurred and by how much? (4 points) 3. Using the general transfer price formula, what is the optimal transfer price per unit? (3 points) 4. Given the optimal transfer price calculated in 3., will the transaction between the two divisions take place? (Yes or No) Explain why or why not. (4 points) Upload Choose a File