Using the charts and formulas provided to answer the following questions:

Formulas: Residual Income: EBIT -.(Required Rate of Return*Average Op Assets) EVA - WACC given: PAT-(WACC*Capital Employed) ROI = Margin * Turnover = EBIT/ Average Op Assets ARR = Average annual after tax accounting profit (Annual Cash flow- Depreciation)/Net Initial Investment Payback= NII/annual cash flows PAT = PBT -(PBT*TR) = PBT * (1-TR) Where: PAT= Profit after tax, PBT= Profit before tax, TR=tax rateThe Hampton Division of Long Island company sells all of its output to the Finishing Division of the company. The only product of the Hampton Division is chair legs that are used by the Finishing Division. The retail price of the legs is $20 per leg. Each chair completed by the Finishing Division required four legs. Production quantity and cost data for 2014 are as follows: Chair legs produced 30,000 Direct materials $5.50 Direct labor $4.00 Factory overhead (25% variable) $8.00 Assume that all variable costs are relevant costs and all xed costs are unavoidable. Required (show all relevant workings): a) b) C) d) What is the maximum transfer price (for one chair leg)? What is the minimum transfer price if the Hampton Division can sell all of its output on the market? What is the minimum transfer price if the Hampton Division can only sell 10,000 chair legs on the external market and the Hampton Division has the capacity to produce 50,000 chair legs? What is the transfer price using variable product costs plus a xed fee of $2 per chair leg? Do you suppose that Hampton and Finishing Divisions would choose to transfer at that price if Hampton cannot sell any of its output on the external market? Explain What is the transfer price using full costs plus 20 percent? Do you suppose that Hampton and Finishing Divisions would choose to transfer at that price if Hampton cannot sell any of its output on the external market? Explain Note: all questions relate to transfer prices for one chair leg