The following information pertains to questions 29 and 30. OEM Company, which manufactures sports equipment, consists of several divisions. Each division operates as a profit centre with full autonomy. Division B informed Division A that it has changed its transfer pricing policy from variable-cost plus to full-cost plus pricing. Division A decided to purchase component EX1 outside the company when Division B increased the transfer price from $156 to $164 per unit. Information for Division A and Division B with respect to component EX1 is as follows: Outside price for component EX1 $160 Division As annual purchases 10,000 units Division Bs variable cost per unit $120 Division Bs fixed manufacturing cost $1,000,000 Division Bs production capacity 50,000 units Division Bs capacity utilization 100% All units of component EX1 produced by Division B can be sold in the market. Variable selling cost is $7 per unit for external sales. All other selling and administrative costs are fixed, regardless of whether component EX1 is sold to Division A or other external customers.

29. Which of the following statements is true?

a) Division A purchases 10,000 units of component EX1 from the outside supplier at a price of $160 and the company saves $40,000 in costs.

b) Division B sells 10,000 units of component EX1 to Division A at $164 and the company income increases by $110,000.

c) Division A purchases 10,000 units of component EX1 from Division B because Division B has idle capacity if Division A purchases the component externally.

d) Division B sells all 50,000 units of component EX1 to external customers and the company maximizes its income.

e) Division A purchases 10,000 units of component EX1 from Division B and the company income increases by $70,000.

30. Now assume that Division B is currently selling 46,000 units externally instead of 50,000 units, and has not changed its transfer pricing policy. What is the minimum transfer price per unit that Division B would accept to provide Division A with the 10,000 units it requires? a) $120.00 b) $125.00 c) $137.00 d) $160.00 e) $144.00