Transfer price

10. Negotiated price approach to transfer pricing In transfer pricing, if the negotiated transfer price is greater than the variable cost and less than the current market price of the product, which of the following statements Is true? The company will not benefit by the purchasing division purchasing from the selling division. Total company profit will increase by the same amount regardless of the actual transfer price, while each division?s increase in profit will depend on the negotiated price. Total company profit will Increase regardless of the actual transfer price, but the amount of the increase will depend on the negotiated price. Total company profit cannot increase when one division purchases goods from another division. The Atlanta Division of Femia Company makes a motor that the Minneapolis Division uses in the assembly of a machine. The Atlanta Division currently makes only the amount it can sell - 60,800 motors each year-but it has the capacity to make a total of 76,000 motors each year. The variable cost of producing the motors is $35 per unit. The current market price to outside customers is $50. The Minneapolis Division is currently purchasing 15,200 motors each year from an outside source at $50 per unit. The management of the two divisions recently negotiated a transfer price of $40 per unit for 15,200 units. How much will each division?s income increase as a result of this transfer, and how much will the income of the overall company increase?Using the preceding information, by how much would each division?s income increase and by how much would the income of the overall company increase if the transfer price were set at $43 instead of $40