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Moes Food Company recently acquired an olive oil processing company that has an annual capacity of 50,000 liters and that processed and sold 45,000 liters last year at a market price of $9 per liter. The purpose of the acquisition was to furnish oil for the Cooking Division. The Cooking Division needs 8,000 liters of oil per year. It has been purchasing oil from suppliers at the market price less a 10% discount. Production costs at capacity of the olive oil company, now a division, are as follows:

DM + DL + Variable processing overhead	$ 4.62
Fixed processing overhead	1.50
Total	$ 6.12

In addition, sales commissions of $0.30 per liter are normally paid for external sales of olive oil, but no commissions will be paid for any sales done internally.

Management is trying to decide what transfer price to use for sales from the newly acquired company to the Cooking Division. The manager of the Olive Oil Division argues that $9, the market price is appropriate. The manager of the Cooking Division argues that the cost of $6.12 should be used.

Determine the minimum recommended transfer price under the following assumptions. Round per unit transfer price to two decimal points.

a. External demand for Olive Oil is expected to remain the same at 45,000 liters next year

b. External demand for Olive Oil is expected to decrease to 40,000 liters next year

c. External demand for Olive Oil is expected to increase to 50,000 liters next year

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