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

The 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 fixed costs are unavoidable. Required (show all relevant workings): a) What is the maximum transfer price (for one chair leg)? b) What is the minimum transfer price if the Hampton Division can sell all of its output on the market? c) 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? d) What is the transfer price using variable product costs plus a fixed 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 e) 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 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 rate Appendix A: Present Value Tables Present Value of $1 Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 1 0.980 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 2 0.961 0.925 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.672 3 0.942 0.889 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.551 4 0.924 0.855 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.451 5 0.906 0.822 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 0.370 6 0.888 0.790 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.303 7 0.871 0.760 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 0.249 8 0.853 0.731 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.204 9 0.837 0.703 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.167 10 0.820 0.676 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 0.137 11 0.804 0.650 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 0.112 12 0.788 0.625 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 0.092 13 0.773 0.601 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 0.075 14 0.758 0.577 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 0.062 15 0.743 0.555 0.417 0.315 0.2390.183 0.140 0.108 0.084 0.065 0.051 16 0.728 0.534 0.394 0.292 0.218 0.163 0.123 0.093 0.071 0.054 0.042 17 0.714 0.513 0.371 0.270 0.1980.146 0.108 0.080 0.060 0.045 0.034 18 0.700 0.494 0.350 0.250 0.180 0.130 0.095 0.069 0.051 0.038 0.028 19 0.686 0.475 0.331 0.232 0.164 0.116 0.083 0.060 0.043 0.031 0.023 20 0.673 0.456 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 0.019 21 0.660 0.439 0.294 0.199 0.135 0.093 0.064 0.044 0.031 0.022 0.015 22 0.647 0.422 0.278 0.184 0.123 0.083 0.056 0.038 0.026 0.018 0.013 23 0.634 0.406 0.262 0.170 0.112 0.074 0.049 0.033 0.022 0.015 0.010 24 0.622 0.390 0.247 0.158 0.102 0.066 0.043 0.028 0.019 0.013 0.008 25 0.610 0.375 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 0.007 26 0.598 0.361 0.220 0.135 0.084 0.053 0.033 0.021 0.014 0.0090.006 27 0.586 0.347 0.207 0.125 0.076 0.047 0.029 0.018 0.011 0.007 0.005 28 0.574 0.333 0.196 0.116 0.069 0.042 0.026 0.016 0.010 0.006 0.004 29 0.563 0.321 0.185 0.107 0.063 0.037 0.022 0.014 0.008 0.005 0.003 30 0.552 0.308 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 0.003 24% 26% 0.806 0.794 0.650 0.630 0.524 0.500 0.423 0.397 0.341 0.315 0.275 0.250 0.222 0.198 0.179 0.157 0.144 0.125 0.116 0.099 0.094 0.079 0.076 0.062 0.061 0.050 0.049 0.039 0.040 0.031 0.032 0.025 0.026 0.020 0.021 0.016 0.017 0.012 0.014 0.010 0.011 0.008 0.009 0.006 0.007 0.005 0.006 0.004 0.005 0.003 0.004 0.002 0.003 0.002 0.002 0.002 0.002 0.001 0.002 0.001 28% 30% 32% 40% 0.781 0.769 0.758 0.714 0.610 0.592 0.574 0.510 0.477 0.455 0.435 0.364 0.373 0.350 0.329 0.260 0.291 0.269 0.250 0.186 0.227 0.207 0.189 0.133 0.178 0.159 0.143 0.095 0.139 0.123 0.108 0.068 0.108 0.094 0.082 0.048 0.085 0.073 0.062 0.035 0.066 0.056 0.047 0.025 0.052 0.043 0.036 0.018 0.040 0.033 0.027 0.013 0.032 0.025 0.021 0.009 0.025 0.0200.016 0.006 0.019 0.015 0.012 0.005 0.015 0.012 0.0090.003 0.012 0.0090.007 0.002 0.009 0.007 0.005 0.002 0.007 0.005 0.004 0.001 0.006 0.004 0.003 0.001 0.004 0.003 0.002 0.001 0.003 0.002 0.002 0.000 0.003 0.002 0.001 0.000 0.002 0.001 0.001 0.000 0.002 0.001 0.001 0.000 0.001 0.001 0.001 0.000 0.001 0.001 0.000 0.000 0.001 0.000 0.000 0.000 0.001 0.000 0.000 0.000 Present Value of an Annuity of $1 in Arrears Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 40% 1 0.980 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.794 0.781 0.769 0.758 0.714 2 1.942 1.886 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.424 1.392 1.361 1.331 1.224 3 2.884 2.775 2.6732.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.923 1.868 1.816 1.766 1.589 4 3.808 3.630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.320 2.241 2.166 2.096 1.849 5 4.713 4.452 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.635 2.532 2.436 2.345 2.035 6 5.601 5.2424.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.885 2.759 2.643 2.534 2.168 7 6.472 6.002 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.083 2.937 2.802 2.677 2.263 8 7.325 6.733 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.241 3.076 2.925 2.786 2.331 9 8.162 7.435 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.366 3.184 3.019 2.868 2.379 10 8.983 8.111 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.465 3.269 3.092 2.930 2.414 11 9.787 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.543 3.335 3.147 2.978 2.438 12 10.575 9.3858.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.606 3.387 3.190 3.013 2.456 13 11.348 9.986 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.656 3.427 3.223 3.040 2.469 14 12.106 10.563 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.695 3.459 3.249 3.061 2.478 15 12.849 11.118 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.726 3.483 3.268 3.076 2.484 16 13.578 11.652 10.106 8.851 7.824 6.974 6.265 5.668 5.162 4.730 4.357 4.033 3.751 3.503 3.283 3.088 2.489 17 14.292 12.166 10.477 9.122 8.022 7.120 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3.518 3.295 3.097 2.492 18 14.992 12.659 10.828 9.372 8.201 7.250 6.467 5.818 5.273 4.812 4.419 4.080 3.786 3.529 3.304 3.104 2.494 19 15.678 13.134 11.158 9.604 8.365 7.366 6.550 5.877 5.316 4.843 4.442 4.097 3.799 3.539 3.311 3.109 2.496 20 16.351 13.590 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.808 3.546 3.316 3.113 2.497 21 17.011 14.029 11.764 10.017 8.649 7.562 6.687 5.973 5.384 4.891 4.476 4.121 3.816 3.551 3.320 3.116 2.498 22 17.658 14.451 12.042 10.201 8.772 7.645 6.743 6.011 5.410 4.909 4.488 4.130 3.822 3.556 3.323 3.118 2.498 23 18.292 14.857 12.303 10.371 8.883 7.718 6.792 6.044 5.432 4.925 4.499 4.137 3.827 3.559 3.325 3.120 2.499 24 18.914 15.247 12.550 10.529 8.985 7.784 6.835 6.073 5.451 4.937 4.507 4.143 3.831 3.562 3.327 3.121 2.499 25 19.523 15.622 12.783 10.675 9.077 7.843 6.873 6.097 5.467 4.948 4.514 4.147 3.834 3.564 3.329 3.122 2.499 26 20.121 15.983 13.003 10.810 9.161 7.896 6.906 6.118 5.480 4.956 4.520 4.151 3.837 3.566 3.330 3.123 2.500 27 20.707 16.330 13.211 10.935 9.237 7.943 6.935 6.136 5.492 4.964 4.524 4.154 3.839 3.567 3.331 3.123 2.500 28 21.281 16.663 13.406 11.051 9.307 7.984 6.961 6.152 5.502 4.970 4.528 4.157 3.840 3.568 3.331 3.124 2.500 29 21.844 16.984 13.591 11.158 9.370 8.022 6.983 6.166 5.510 4.975 4.531 4.159 3.841 3.569 3.332 3.124 2.500 30 22.396 17.292 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.160 3.842 3.569 3.332 3.124 2.500