Question 1 Techno via Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximise ROI and EVA. Managers are essentially free to determine whether goods will he transferred internally and what will he the internal transier price. Headquarters has directed that all internal prices be expressed on a full costplus basis. The markup in the full cost pricing arrangement, however, is left to the discretion of the divisional managers. Recently, the two divisional managers met to discuss a pricing agreement for a subwoofer that would he sold with a personal computer system. Production of the subwoofers is at capacity. Subwooiers can be sold for $31 to outside customers. The Audio System Division can also buy the subwoofers from external sources for the same price, however, the manager of this division is hoping to obtain a price concession by buying internally. The full cost of manufacbning the subwoofer's is $3]. It the manager of the Ausiary Components Division sells the subwoofers internally, $5 of selling and distribution cost be avoided. The volume of business would be ESIJJIIIJIJ units per year, which is well within the capacity of the producing division. After some discussion, the two managers agreed on a full cost plus pricing scheme that would be reviewed annually. Any increase in the outside selling price would be added to the transfer price by simply increasing the markup by an appropriate amount. Any major changes in the factors that led to the agreement could initiate a new round of negotiation. Otherwise, the full costplus arrangement would continue in force for subsequent years