The Parts Division of Ram Company produces units that can either be sold to outside customers or transferred to Ram's Equipment Division.The following data are available from the last year:

Parts Division:

Production capacity in units

80,000

Selling price per unit to outside customers

$70

Variable cost per unit

$40

Fixed cost per unit at capacity

$20

Equipment Division:

Number of units needed annually

5,000

Price per unit paid to an outside supplier

$50

1. From the Equipment Division's standpoint, what is the highest acceptable transfer price for each of the 5,000 units?

multiple choice 1

• $20
• $50
• $40
• $70

2. Assume the Parts Division sells only 70,000 units annually to outside customers. If 5,000 units are transferred internally at a transfer price of $45, what will be the gain or loss in potential profits for the company as a whole?

multiple choice 2

• $100,000 gain
• $50,000 gain
• $50,000 loss
• $100,000 loss

3. Assume the Parts Division sells only 78,000 units annually to outside customers. From the Parts Division's standpoint, what is the lowest acceptable transfer price for each of the 5,000 units?

multiple choice 3

• $40
• $52
• $70
• $58