**Analyzing divisions' costs** I need to break down the problem involving Phoenix Incorporated and its divisions, A and B. Division A currently buys equipment externally for $80, and it has several costs: cellular equipment at $80, other materials at $10, with total manufacturing costs at $130. Their total marketing costs amount to $50, leading to an operating income of $140 per unit sold. On the other side, Division B sells equipment for $130, but I need to consider the variable manufacturing costs associated when Division A purchases from B.**Clarifying Division B costs** I'm thinking about the variable manufacturing costs for Division B. They’re listed as $70 per unit for sales to outside customers, but it seems like when Division A places an order, the cost drops to $60 per unit. Division B also has variable marketing costs of $8 and fixed costs of $700k. Currently, they are operating at 80% capacity, selling 65,000 units, which means their full capacity is around 81,250 units. Therefore, they have about 16,250 units of idle capacity.**Examining variable costs** I noticed a mismatch regarding Division B's variable manufacturing costs. Initially, they’re stated as $70 per unit for outside sales, but there's a mention that costs drop to $60 per unit for Division A, likely due to customization. It seems that when Division A orders, they incur lower manufacturing costs, possibly because little to no marketing is needed. I wonder if there are shipping costs to consider when Division B sells to Division A. I need to analyze this carefully!**Evaluating marketing and manufacturing costs** I need to clarify the variable marketing costs, which are generally avoided but noted as $8 per unit. For internal transfers, I’ll assume these costs aren’t incurred. There’s also a note that Division B's variable manufacturing costs are $70, yet it’s been mentioned earlier that the cost is lower for Division A at $60. Now, I need to assess the impact of Division A's proposal to buy 32,500 units at $75 each on Division B's operating income and the overall impact on Phoenix Incorporated.**Calculating impact of A's purchase** If Division A purchases 32,500 units, Division B might have to cut outside sales due to capacity limits—they can produce a maximum of 81,250 units. Selling to A would push them to give up 16,250 outside sales. For the first 16,250 units sold to A with idle capacity, the minimum acceptable price is $60. For the remaining units that replace outside sales, transferring at $75 leads to a net loss of $37 per unit. The total impact on B's operating income would be a decrease of $357,500 if they accept the proposal. Overall, Phoenix Incorporated experiences lost contributions totaling $845,000.**Analyzing Division B's transfer scenario** If Division A purchases 32,500 units internally at $75 instead of buying externally at $80, the corporation can save significantly. For the 16,250 units using idle capacity, the cost difference provides a $20 savings per unit. However, Division B will lose $52 in contribution for each of the displaced outside units. Overall, the corporate effect shows a decrease in income by $195,000 after accounting for lost contributions. Now, for the new scenario, Division B should sell 16,250 units to A at $75, which is above their cost of $60 and avoids cannibalizing outside sales. This transfer increases B’s operating income by $243,750 while maintaining their outside sales of 65,000 units unaffected.**Determining transfer price range** With Division B utilizing idle capacity, they can sell 16,250 units internally at a minimum transfer price of $60, while A's maximum willingness to pay is $80, based on external supplier costs. This gives a negotiation range of $60 to $80 for those units. However, for any units beyond this capacity, the minimum price exceeds what A would pay, which means no transfers should occur. To summarize, the range of negotiable transfer prices is $60 to $80 for up to 16,250 units, with no agreeable price beyond that. We’ll present a thorough step-by-step explanation and final numbers in our answer, ensuring clarity in our calculations.**Creating the final message** I’m outlining my steps to finalize the message clearly. First, I’ll compute the total capacity as 81,250 with 16,250 units idle. Next, I’ll find the contribution margin on outside sales, which is $52. For internal units sold at a transfer price of $75, B's incremental contribution is $15. I’ll determine that 16,250 units should be transferred since it maximizes income without reducing profits. Therefore, B’s operating income increases by $243,750, and the firm gains $325,000. Finally, the range for transfer prices is between $60 and $80 for up to 16,250 units, with no agreements possible beyond that. I’ll keep the formatting straightforward, using bullet points as needed for clarity.