[The following information applies to the questions displayed below.]

In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of the divisions are evaluated based on their divisional profits.

	Case
		A				B
Division X:
Capacity in units		92,000				106,000
Number of units being sold to outside customers		92,000				89,000
Selling price per unit to outside customers	$	58			$	28
Variable costs per unit	$	23			$	19
Fixed costs per unit (based on capacity)	$	6			$	6
Division Y:
Number of units needed for production		17,000				17,000
Purchase price per unit now being paid to an outside supplier	$	50			$	38

1-a. Refer to the data in case A above. Assume in this case that $2 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division.

1-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?

	No
	Yes

2-a. Refer to the data in case B above. In this case, there will be no savings in variable selling costs on intracompany sales. Determine the transfer price of the selling division

2-b. If the managers are free to negotiate and make decisions on their own, will a transfer take place?

	No
	Yes

2-c. What is the range of transfer price the managers of both divisions should agree?