Keep Cool is a manufacturer of chest freezers which retail for $800 per unit. Each freezer requires a motor. As part of the firm's production process, motors are supplied to the assembly department by the motor department. The motor department incurs the following costs to produce each motor:

Direct materials	$30.00
Direct labour	$15.00
Variable overhead	$6.00
Fixed overheard	$10.00

There is an active external market for motors and the motor department can sell these motors for $90.00 per unit. The motor department incurs $10 in shipping costs for all sales to external customers. No such costs are incurred on internal motor transfers.

The manager of the motor department has significant experience within Keep Cool and is deeply aware of the costs incurred across different departments. The manager from the assembly department is relatively new to the firm. Both the motor department manager and their counterpart from the assembly department are entitled to an annual bonus based on meeting key production quality and efficiency targets.

1. If the transfer price for internal transfers of motors was set through negotiation, discuss what the likely range of transfer prices might be. Suggest and discuss a reasonable transfer price that would balance the preferences of both departments and illustrate how this could be achieved through cost-plus pricing.
2. Provide and discuss examples (include financial figures and workings) which illustrate how transfer prices for motors could be set using the general transfer price rule under the following scenarios:

Scenario	Motor Department capacity	Assembly Department demand	External market demand
1	2,000 motors	2,000 motors	0
2	3,000 motors	5,000 motors	10,000 motors
3	2,000 motors	1,500 motors	650 motors