ECONOMICS

The Santa Fe Manufacturing Company has two divisions in Kansas, the Holton Division and the Derby Division. Currently, Derby buys a part (10, 000 units) from Holton for $16 per unit. Holton has purchased new equipment and wants to increase the price to Derby to $18 per unit. The controller of Derby claims that she cannot afford to go that high, as it will decrease the division’s profit to near zero. Derby can buy the part from an outside supplier for $16 per unit. The incremental costs per unit that Santa Fe incurs to produce each unit are Holton’s variable costs of $12. Fixed costs per unit for Holton with the recent purchase of equipment are $5Assume the Derby Division is located in England rather than Kansas. The income tax rate used in England is 45 percent, whereas the effective income tax rate is 30 percent in Kansas. Which cost would be the best transfer price for the company as a whole (based upon the original data)?