The clock division of Control Central Corporation manufactures clocks and then sells them to customers for $10 per unit. Its variable cost is $4 per unit, and its fixed cost per unit is $2.50. management would like the clock division to transfer 8.000 of these clocks to another division within the company at a price of $5. The clock division could avoid $0.50 per clock variable packaging costs by selling internally.

Required:

a. Determine the minimum transfer price, assuming the clock division is not operating at full capacity and what is your interpretation of these results?

b. Determine the minimum transfer price, assuming the clock division is operating at full capacity and what is your interpretation of these results?

c. Why transfer pricing policy can be interpreted negatively and positively? Give an explanation!