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Transfer Pricing with Market Price and External Sourcing : A company has two divisions: Division A, which produces a component, and Division B, which uses
Transfer Pricing with Market Price and External Sourcing: A company has two divisions: Division A, which produces a component, and Division B, which uses the component in its final product. Division A has variable costs of $25 per unit and fixed costs of $8,000 per month. The market price for the component is $40 each. Division B can buy the component from external suppliers for $45 each. Determine the transfer price that maximizes the company's overall profit if Division B can source the component externally.
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