1. Compute the firm-wide contribution margin associated with Component Y34 and Model SC67. Also, compute the contribution margin earned by each division.
2. Suppose that Cam DeVonn abolishes the current transfer pricing policy and gives divisions autonomy in setting transfer prices. Can you predict what transfer price the manager of the Components Division will set? What should be the minimum transfer price for this part? The maximum transfer price?
3. Given the new transfer pricing policy, predict how this will affect the production decision of the PSF Division manager for Model 5C67. How many units of Component Y34 will the manager of the PSF Division purchase, either internally or externally?
4. Given the new transfer price set by the Components Division and your answer to Requirement 3, how many units ofY34 will be sold externally?
5. Given your answers to Requirements .3 and 4, compute the firm-wide contribution margin. What has happened? Was Cam's decision to grant additional decentralization good or bad?