Accounting · Management Accounting

Zell Co has two profit centres, Division M and Division C, both selling the same product, M1, at different locations. Division M currently produces and supplies Product M1 solely to the external market at a price of $180 per unit, with a total cost per unit of $125 (60% of which is variable cost). The division always operates at its full capacity. Division C has no production facility and sources Product M1 either from a nearby external supplier at $188 per unit or from Division M (which incurs transportation cost of $9 per unit). The external selling price set by Division C is $190 per unit. For the upcoming period, Division M has quoted a transfer price of $183 per unit to Division C. Evaluate the following statements: Statement 1: Division M will be negatively impacted by transferring additional output of Product M1 to Division C. Statement 2: Division C is likely to agree to the transfer price and proceed with purchasing Product M1 from Division M.