The Pacific Company is a multidivisional company. Its managers have full responsibility for profits and complete autonomy to accept or reject transfers from other divisions. Division A produces a subassembly part for which there is a competitive market. Division B currently uses this subassembly for a final product that is sold outside at $2,400.

Division A charges Division B market price for the part, which is $1,500 per unit. Variable costs are $1,050 and $1,200 for Divisions A and B, respectively.

The manager of Division B feels that Division A should transfer the part at a lower price than market because at market, Division B is unable to make a profit.

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