Assume that Selling Division and Buying Division are both owned by Overall Corporation. Selling Division sells a product that is used by Buying Division and outside customers. Selling Division has 22,000 units of excess capacity. Selling Division currently sells the product for $80 per unit and Buying Division currently buys 22,000 units of the product from an outside source for $80 per unit. Variable costs of the product are $16, of which $4 is the cost of selling the product to an outside customer.
Using Selling price less avoidable costs as the minimum price, fill in the following formula for the desired transfer price: $____< transfer price < $___________.
Using Variable costs as the minimum price, fill in the following formula for the desired transfer price: $________ < transfer price < $__________.
Assume there are no avoidable costs with an internal sale (variable costs equal $16) and that Buying Division buys 22,000 units from Selling Division. Complete the table for each transfer price:
| Transfer Price | Transfer Price | |
| $75 | $23 | |
| Increase in net income of Selling Division | $ | $ |
| Increase in net income of Buying Division | $ | $ |
| Increase in net income of Overall Corporation | $ | $ |
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