The data for Pointe Claire Inc. are given in P9.55B. Assume that the transfer price has been set at $504, which is division A's total cost plus a 20% markup. Division A's total cost of a component is $420, which includes fixed overhead applied at the rate of $200,000 of budgeted fixed overhead costs on budgeted annual production of 10,000 units. Division B has a special offer for its product of $550. Division B incurs variable costs of $100 in addition to the transfer price for the division A components. Both divisions currently have excess capacity.

Instruction: a. Is division B's manager likely to accept or reject the special offer? Why?

b. Is this decision in the best interests of the company as a whole? Why or why not? Income per unit: $50

c. How could the situation be remedied using the transfer price?