The Counter Division Can Sell Externally for $60 Per Unit

question 113

Essay

The Counter Division can sell externally for $60 per unit. Its variable manufacturing costs are $35 per unit, and its fixed costs are $12 per unit.
Required:
(a) What is the optimal transfer price for transferring internally, assuming the division is operating at capacity?
(b) What is the optimal transfer price for transferring internally, assuming the division is operating at well below capacity?

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Definitions:

Ultimatums

A final demand or statement of terms, the rejection of which will result in retaliation or a breakdown in relations.

Irrational Behavior

Actions or decisions that do not follow logical reasoning, typically influenced by emotions, misconceptions, or psychological biases.

Sympathetic Behavior

Actions demonstrating understanding, compassion, or support towards others' feelings or situations.

Support Agreement

A formal accord between parties outlining the terms for providing ongoing assistance and maintenance services.