Goho Manufacturing Company is a diversified aerospace company, including two operating divisions, Specialized Semiconductors and Navigational Systems Divisions. Condensed divisional income statements, which involve no intra-company transfers and which include a breakdown of expenses into variable and fixed components, are as follows:

The Specialized Semiconductors Division is presently producing 640 units out of a total capacity of 800 units. Materials used in producing the Navigational Systems Division€™s product are currently purchased from outside suppliers at a price of $1,320 per unit.
The Specialized Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

Instructions
1. Would the market price of $1,320 per unit be an appropriate transfer price for Goho Manufacturing Company? Explain.
2. If the Navigational Systems Division purchases 160 units from the Specialized Semiconductors Division, rather than externally, at a negotiated transfer price of $1,160 per unit, how much would the income from operations of each division and total company income from operations increase?
3. Prepare condensed divisional income statements for Goho Manufacturing Company, based on the data in part (2).
4. If a transfer price of $880 per unit is negotiated, how much would the income from operations of each division and total company income from operations increase?
5. a. What is the range of possible negotiated transfer prices that would be acceptable for Goho Manufacturing Company?
b. Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transferprice?

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Goho Manufacturing Company For the Year Ended December 31, 2008 Specialized Semi- Drv isional Income Statements Navigational Systems Division conductors Division Total Sales: 640 units $1,320 per unit 1,000 units $1,984 per unit S 844,800 1,984,000 $2,828,800 $844,800 51,984,000 Expenses: Variable 640 units x $776 per unit $496,640 496,640 1,560,000 449,600 2,506,240 322,560 1,000 units $1,560 per unit Fixed 195,200 $691,840 $152,960 51,560,000 254,400 $1,814,400 169,600 Total expenses Income from operations $1,320 of the $1,560 per unlt represents materials costs, and the remaining $240 per unit represents other varlable conversion expenses Incurred within the Navigational Systems Division.