Techno via Inc. has two divisions: Auxiliary Components and Audio Systems. Disdsional managers are encouraged to maximise RCII and EVA. Managers are essentially free to determine whether goods will he transferred intemaily and what will be the internal transfer price. Headquarters has directed that all internal prices he expressed on a full cost-plus basis. The markup in the full cost pricing arrangement, however, is left to the discretion of the divisional managers. Recently, the two divisional managers met to discuss a pricing agreement for a subwoofer that would he sold with a personal computer system. Production of the suhwoofers is at capacity. Subwoofers can he sold for $31 to outside customers. The Audio System Division can also buy the suhwoofers from external sources for the same price, however, the manager of this division is hoping to obtain a price concession by buying internally. The full cost of manufacturing the suhwoofers is $3]. if the manager of the Auxiliary Components Division sells the suhwoofers internally, $5 of selling and distribution cost he avoided. The volume of business would be 25!],IJIIIIJ units per year, which is well within the capacity of the producing division. After some discussion, the two managers agreed on a full cost plus pricing scheme that would be reviewed annually. Any increase in the outside selling price would be added to the transfer price by simply increasing the markup by an appropriate amount. Any major changes in the factors that led to the agreement could initiate a new round of negotiation. Otherwise, the foil cost-plus arrangement would conb'nue in force for subsequent years. Required: 1. Calculate the minimum and maximum transfer prices. (-4 marks) 2. Assume that the transfer price agreed on between the two managers is halfway between the minimum and maximum transfer prices. Calculate this transfer price. What markup over full cost is implied by this transfer price? (4 marks) 3. Refer to requirement 2. Assume that the following year the outside price of suhwoofers increases to $32. What is the new full cost-plus transfer price? (A marks) at. Assume that two years after the initial agreement, the market for subwoofershas softened considerably, causing excess capacity for the Auxiliary Components Divisions. Would you expect a renegotiation of the full cost-pluss pricing arrangement for the coming year? Explain