Alameda Ltd has two divisions, Division Alpha and Division Beta. Division Alpha makes widgets, which it can sell externally for $\$ 45$ as well as internally to Division Beta. The marginal cost of making a widget is $\$ 30$ per unit in Division Alpha, and the division has spare capacity.

Division Beta turns widgets into another product, the bidget, at a marginal cost of $\$ 55$ per unit. Division Beta can then sell bidgets externally for $\$ 120$ per unit. External sales of widgets incur a variable distribution cost of $\$ 3$ per unit:

MCa = $30 MCb = $55 Sales Price: $120 Division Alpha ($3) distribution costs Division Beta Sell outside Sales price = $45 The lowest transfer price Division Alpha will accept is $ External market