The variable costs of Division Y will be incurred whether it buys from Division X...
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Accounting
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would: 1. not want to buy from Division X, as the same component could be purchased at the market price of $32. 2. buy from Division X, as this would be in the best interest of the company as a whole. 3. buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y. 4. probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36
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