Clinton Corporation has two decentralized divisions, Alpha and Beta. Alpha always has purchased certain units from Beta at $90 per unit. Beta plans to raise the price to $120 per unit, the price it receives from outside customers. As a result, Alpha is considering buying these units from outside suppliers for $90 per unit. Beta's costs follow:

Required
a. If Alpha buys from an outside supplier, the facilities that Beta uses to manufacture these units will remain idle. What will be the result if Clinton enforces a transfer price of $120 per unit between Alpha and Beta?
b. Suppose Clinton enforces a transfer price of $90 and insists that Beta sell to Alpha before selling to outside customers. Beta currently operates at capacity and can easily sell the units it sells to Alpha on the outside market. What cost will Clinton incur as a result of this policy?

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Annual fixed costs Annual production of these units sold to Alpha.... $150,000 12,000 units