There are 3 divisons ,RD,CD,ID .

Exhibit B Quote from RD to ID: Unit Transfer Pricing Supply of 500 units of modified Alpha I Transferred-in Cost from CD to RD (Exhibit D) Modification premium from CD to RD Recovery of R & D Investment (Royalty) - see notes below Total Product Cost Mark-up @ 20% (rounded) $500 65 100 $ 665 135 Transfer Price to ID $800 As a financial policy, the investment in R&D facility costs of $6,000,000 would be amortized over a production of 60,000 units. Royalty per unit is thus $100. RD has been successful in selling Alpha. It has sold 50,000 units in the open market. It hopes to recover the royalty balance in the next couple of year, as demand exists in the open market for the unmodified Alpha. Exhibit B Quote from RD to ID: Unit Transfer Pricing Supply of 500 units of modified Alpha I Transferred-in Cost from CD to RD (Exhibit D) Modification premium from CD to RD Recovery of R & D Investment (Royalty) - see notes below Total Product Cost Mark-up @ 20% (rounded) $500 65 100 $ 665 135 Transfer Price to ID $800 As a financial policy, the investment in R&D facility costs of $6,000,000 would be amortized over a production of 60,000 units. Royalty per unit is thus $100. RD has been successful in selling Alpha. It has sold 50,000 units in the open market. It hopes to recover the royalty balance in the next couple of year, as demand exists in the open market for the unmodified Alpha