Miller has two divisions, the Wheel Division and the Molding Division, Each is operated as a profit center. At present, the Wheel Division sells its product to all customers at a price of $35. Its variable costs are $30 per unit and its fixed costs are $3 per unit. The Molding Division can purchase the same unit from external supplier for $40 per unit.
A) Under the present conditions, explain whether the Molding Division should purchase the product from the Wheel Division or from the external supplier.
B) The Wheel Division is considering its selling price to $50 per unit. Explain whether and how you would change your answer to part (A). Consider the minimum and maximum (the transfer price) selling price.