Mogi Corp. manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are:

P Division produces 25,000 gallons per month. R Division uses 40,000 gallons per month; of that, 25,000 gallons are purchased internally and 15,000 are purchased externally at $ 10 per gallon. After processing through R Division, a gallon of final product can be sold for $ 55.
a. What would be P’s transfer price to R Division if the price is set at 180 percent of variable cost?
b. What would be P’s transfer price to R Division if the price is set at 130 percent of full cost?
c. What would be P’s transfer price to R Division if the price is set at market value?
d. What is Mogi Corp.’s operating profit if all 40,000 gallons of product are transferred in a month? By how much would this profit increase if R Division could acquire all necessary gallonsinternally?

$15 12 53 Variable cost per gallon Fixed cost per gallon