Shell evaluates transfer pricing for its internal divisions. In April 2042, the following data is provided:

• Division A Production Cost: $20 per unit
• Division B Purchase Price from External Supplier: $22 per unit
• Transfer Price: $21 per unit

Requirements:

• Calculate the impact of transfer pricing on Division A’s profitability.
• Calculate the impact of transfer pricing on Division B’s profitability.
• Prepare a transfer pricing policy recommendation.
• Discuss the benefits and challenges of using transfer pricing.