A multinational corporation sets transfer prices between its divisions: Division A sells a component to Division B at cost plus 25%. Division B sells the final product externally at market price. Costs for Division A: Variable costs $80,000, fixed costs $40,000, production volume 15,000 units. Market price for the final product is $150/unit.

• Requirements:
  • Calculate the transfer price from Division A to Division B.
  • Analyze the impact of transfer pricing on Division A's profitability.
  • Recommend a transfer pricing policy that maximizes overall corporate profitability.
  • Discuss the ethical considerations in setting transfer prices between divisions.