Gage corporation has two operating divisions in a semiautonomous organizational structure. adams division, located in the united states, produces a specialized electrical component that is an input to bute division, located in the south of england. adams uses idle capacity to produce the component, which has a domestic market price of $11. its variable costs are $6 per unit. gage’s u. s. tax rate is 40 percent of income. in addition to the transfer price for each component received from adams, bute pays a $4 per unit shipping fee. the component becomes a part of its assembled product, which costs an additional $2 to produce and sells for an equivalent of $22. bute could purchase the component from a manchester (england) supplier for $11 per unit. gage’s english tax rate is 60 percent of income. assume that english tax laws permit transferring at either variable cost or market price.

requirements:

a-1. what are the respective profits after tax for both the adams division and bute division of gage if the transfer price is $6. (round your answers to 2 decimal places.)

a-2. what are the respective profits after tax for both the adams division and bute division of gage if the transfer price is $11. (round your answers to 2 decimal places.)

a-3. what transfer price is economically optimal for gage corporation? option 1: the transfer price economically optimal for gage corporation is $6 per unit. option 2: the transfer price economically optimal for gage corporation is $11 per unit.