The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit.

Required:

1. Assume the Molding Department is operating at full capacity. Explain whether it should accept the transfer price proposed by management.

2. Identify the minimum transfer price that the Molding Division will accept and explain why.