Wheely, Inc., has two divisions, A and B, which manufacture expensive bicycles. Division A produces the bicycle frame, and Division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit centre. The transfer price for the subassembly has been set at the long-run average market price. The following data are available for each division: B (Click to view the data.) Required Requirement 1. Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price? Show your computations. Begin by calculating the gain or loss if transfers are made to Division B when there is no unused capacity in Division A. Select the formula you will use and enter the amounts. (Use parentheses or a minus sign for a loss.) Selling price for intermediate product Incremental cost = Gain (loss) from transfer = Should transfers be made to Division B if there is no unused capacity in Division A? Transfers be made because the incremental revenues are the incremental costs. Select the formula you will use to calculate the correct transfer price. Opportunity cost per unit + Incremental cost per unit = Minimum Transfer Price + 11 Is the market price the correct transfer price? because the market price is the minimum transfer price. Requirement 2. Assume that Division A's maximum capacity for this product is 800 units per month and sales to the intermediate market are now 560 units. Assume that for a variety of reasons, Division A will maintain the $180 selling price indefinitely. That is, Division A is not considering lowering the price to outsiders even if idle capacity exists. Should 240 units be transferred to Division B? At what transfer price? O A. Yes, 240 units should be transferred to Division B at a price of $165. B. Yes, 240 units should be transferred to Division B at a price between $115 and $155. C. No, 240 units should not be transferred to Division B. D. Yes, 240 units should be transferred to Division B at a price between $115 and $320. O E. Yes, 240 units should be transferred to Division B at a price of $180. Requirement 3. Suppose Division A quoted a transfer price of $155 for up to 200 units. What would be the contribution to the company as a whole if a transfer were made? As manager of Division B, would you be inclined to buy at $155? Explain. The contribution to the company as a whole if a transfer were made would be $per unit. Complete the table below using the transfer price of $155 to compute the contribution margin to Division B. (Use parentheses or a minus sign for a loss. If an amount is zero, enter "O".) Selling price for final product Transferred-in cost per unit (market) Incremental cost per unit for completion Contribution margin (loss) on product As manager of Division B, would you be inclined to buy at $155? A. No, they will have a loss and the division will not accept operating at a loss. B. Yes, they are making a profit and therefore, this will benefit their division. C. No, the division would not make a large enough profit to make the purchase worthwhile. D. Yes, even if they are not making the desired profit, it will benefit the company as a whole. 320 180 Selling price for final product Long-run average selling price for intermediate product Incremental cost per unit for completion in Division B Incremental cost per unit in Division A The manager of Division B has made the following calculation: 165 115 320 Selling price for final product Transferred-in cost per unit (market) $ 180 165 345 Incremental cost per unit for completion $ Contribution (loss) on product (25)