Thus, the negotiated transfer price is $1.50 + 20% ($1.50) = $1.50 + $0.30 = $1.50 per unit Safeway Division's Net Income Market Price Variable Cost Alpha Outside Alpha Outside Supplier Beta Supplier $120,000 $120.000 $120.000 $75.000 Negotiated Transfer Price Alpha Outside Beta Supplier Beta 131 (00,00 units) 169.00 units $120.000 S108,000 Sales To outlidt appler To Alpha-Beta Variable costs Manufacturing Selling Contribution margin Total divisional CM 60.000 60,000 15.000 15.000 $ 45.000 $ 45,000 $90.000 60.000 60,000 15.000 15,000 $ O $ 45,000 $45.000 60,000 60,000 15,000 15,000 $ 33,000 S 45,000 $78,000 8.17 The Sattle Automobile Company has just acquired a battery division. The company's motor division is presently purchasing 100,000 batteries each year from Bendox Corporation at the price of $24 per battery. Through the acquisition of the battery division top management now $12 feels that the company's motor division should begin to purchase its batteries from the newly acquired battery division. The battery division's cost per battery is as follows: Direct materials Direct labor Variable overhead 2 Fixed overhead Total unit cost $20 Based on 250.000 units of capacity of the battery division Top management wishes to decide on the transfer price to be charged on the intracompany transfers 1. Explain why each of the following would or would not be an appropriate transfer price: (a) $24 (1) $20 (e) $21 (d) $18 2. Assuming that the battery division is operating at full capacity, explain why each of the transfer prices given in parts 1(a) through 1(d) would or would not be an appropriate price