please answer both 1.aand 1.b b) in the second year division padding increases its production capacity to 350,000. everything else remains the same as described on table 2. calculate the amount Division Cover will have to pay to Division padding. hint use the minimum transfer price.

Exercise 3. ComfyCycle Inc. (27 points) Please, download Exoelfile \"SMCS_Erercise_3.xlsx \" and conduct your calculations there. Please name the Excel file with your solutions as "SMCS_Exercise_3_youridnumber.xlsx\" and upload it. You do not have to show calculations in the boxes below the questions. ComfyCycle Inc. produces seat cushions for high-end bicycles. The company is made up of two divisions. Division Padding produces the padding for the seat cushions while Division Cover produces seat covers and sells the complete seat cushions to customers. One seat cushion requires one padding and one cover. The paddings are the main selling point of the seat cushions, due to their new and patented foam technology. Many outside manufacturers are trying to buy the paddings from the company to produce their own bicycle seats. But the nal product of ComfyCycle, the seat cushions, are also very sought after by high-end bicycle manufacturers. The company cannot catch up with the demand for both. Production capacities, costs, and market price are listed below. Table 2. Operating data Operating data Division Padding Expected market demand [unit] 300,000 200,000 Marketpoceiecewnm a-r_ Variable costs [6 per unit] 20 (without paddings) Production capacity [units] 200,000 1. Up to now, the CEO decided himself what the transfer price between the two divisions is. In order to implement a more objective process, he decided that this year the divisions should use the general transfer pricing rule. (12 points) a. What amount will Division Cover pay to Division Padding to acquire the paddings it needs for the production of seats? Calculate the amount using the minimum transfer price! (4 points)