PROBLEM 5 (20%) Brighton TechWorks specializes in producing high-performance graphics components for advanced computing systems. The company operates through two distinct divisions: the Hardware Division, which manufactures the core circuit boards, and the Software Integration Division, which installs customized firmware according to client specifications. The Hardware Division incurs an average cost of $900 per board ($500 variable cost and $400 allocated fixed cost), while the Software Division incurs an additional $200 per unit to complete customer-specific modifications. The finished product is typically sold to clients for $1.400 per unit. Brighton TechWorks is currently at full production capacity, and expanding output is not an option at this time. Historically, the two divisions have negotiated a transfer price, averaging around $1.000 per board. This arrangement has allowed the Hardware Division to report a $100 profit per unit, and the Software Division a $200 profit per unit. Both division managers receive bonuses based on their respective division's reported profits. However, a conflict has recently emerged. Jordan Ellis, manager of the Hardware Division, has declared an unwillingness to continue supplying boards to the Software Division. Instead, Jordan has received an offer from Phoenix Systems, a third-party buyer, to purchase the entire output at $1.300 per board, and is prepared to sign a long-term contract. To maintain internal sales, Jordan offered the Software Division boards at a reduced internal rate of $1.250 per unit, citing savings in distribution and marketing costs, But Alex Rivera, manager of the Software Division, declined the offer, arguing that the division would incur losses at that price. Feeling that this decision threatens the viability of his division, Alex approached Morgan Blake, the company's general manager, requesting that Jordan be barred from selling externally. Alex's early market research suggests that sourcing similar boards from outside vendors would cost no less than $1,280 each, leaving the Software Division in a financially vulnerable position if Jordan proceeds with external sales. Required: 1. What is the minimum and maximum transfer price in this case? 2. What transfer price would you recommend? Why? 3. What recommendations do you have for the programming division