Refer to the information presented in E10-14. Assume that the Molding Department has excess capacity, but the Assembly Department requires the casing to be made from a specific blend of plastics. This would raise the variable cost per unit to $20.

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable costs for the casing are $12 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 8,000 units to the Assembly Division at a price of $18 per unit.

Required:

1. Explain whether the Molding Department should accept the $18 transfer price proposed by management.

2. Determine the minimum transfer price that it will accept.

3. Determine the mutually beneficial transfer price so that the two divisions equally split the profits from the transfer.