QUESTION 3: Transfer pricing; outsourcing TOTAL (15 marks) Paint me White is in the business of selling painted furniture. It has two departments, Assembly furniture (AF) and Painting furniture (PF). The (AF) department transfers assembled furniture to the (PF) department at a predetermined transfer price. The (AF) department's standard variable assembly cost per unit is $140. The (AF) department has spare capacity, and it could sell all its furniture to outside buyers at $250 per unit in a perfectly competitive market. a . Required: 1. What is the highest price that the managers of the Painting department would want to pay the Assembly department for the furniture? [5 marks] 2. How would the transfer price change if the (AF) department had no spare capacity? (5 marks) What transfer price would you recommend if there was no external market for the transferred furniture and the (AF) department had spare capacity? (5 marks]