(Intracompany transfers) The Clutch Division of James Industries makes a variable-speed clutch that it sells commercially at $500 per unit. Standard unit costs for the variable-speed clutch are

The standard direct labor rate is $10 per hour, and overhead is assigned at 100 percent of the direct labor rate. Expected capacity direct labor hours are 75,000, and the overhead rate is $4 variable and $6 fixed. The Clutch Division is operating at 80 percent of capacity.
A coal-hauling system is being rebuilt by the Materials Handling Division of James Industries. This job requires 50 variable-speed clutches. A clutch that meets the job specifications can be purchased for $450 a unit from an outside supplier. The clutch made by the Clutch Division exceeds the specifications for the coal-handling system job. Interdivisional transfers in James Industries are made at market price when available, and all divisions are evaluated as profit centers.

a. From the perspective of James corporate officials, is James Industries better off if the Materials Handling Division purchases the clutches from the out¬ side supplier at $450 a unit or from the Clutch Division at $500 a unit? Would your answer change if the Clutch Division agreed to transfer the clutches at $450 a unit? Explain.

b. From the perspective of the Materials Handling Division manager, should the division purchase the clutches externally at $450 a unit or internally at $500 a unit? Would your answer change if the Clutch Division agreed to transfer the clutches at $450 a unit? Explain.

c. If the Clutch Division is operating at 80 percent of capacity, what is the lowest price at which it would consider transferring the clutches to the Ma¬ terials Handling Division? Would your answer change if the Clutch Division was operating at 100 percent of capacity? Explain.

d. Because both divisions are evaluated as profit centers, what is the most useful transfer price if the Clutch Division is operating at 80 percent capacity? Explain. Would your answer change if the Clutch Division were operating at 100 percent of capacity? Explain.

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Direct material $ 75 Direct labor 150 Overhead 150 Total unit cost $375