Chic Cycle ?Inc., has two? divisions, A and? B, which manufacture expensive bicycles. Division A produces the bicycle? frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit center. The transfer price for the subassembly has been set at the? long-run average market price. The following data are available for each? division:

Selling price for final product		$290
Long-run average selling price for intermediate product		175
Incremental cost per unit for completion in division B		160
Incremental cost per unit in division A		120
The manager of division B has made the following? calculation:
Selling price for final product		$290
Transferred-in cost per unit (market)	$175
Incremental cost per unit for completion	$160	$335
Contribution (loss) on product		$(45)

a. Should transfers be made to division B if there is no unused capacity in division? A? Is the market price the correct transfer? price? Show your computations. Begin by calculating the gain or loss if transfers are made to division B when there is no unused capacity in division A. What is the minimum transfer price?

b. Assume that division? A's maximum capacity for this product is 1,000 units per month and sales to the intermediate market are now 750 units. Assume that for a variety of? reasons, division A will maintain the ?$175 selling price indefinitely. That? is, division A is not considering lowering the price to outsider buyers even if idle capacity exists. Should 250 units be transferred to division? B? At what transfer? price?

c. Suppose division A quoted a transfer price of ?$130 for up to 250 units. What would be the contribution to the company as a whole if a transfer were? made? As manager of division? B, would you be inclined to buy at ?$130?? Explain. The contribution to the company as a whole if a transfer were made would be ?$--- per unit. Complete the table below using the transfer price of $130 to compute the contribution margin to division B.

Selling price for final product		?
Trnasferred in cost per unit (in market)	?
Incremental cost per unit for completion	?	?
Contribution margin (loss) on product		?

As manager of division? B, would you be inclined to buy at $130??