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Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

a) Income would increase by $40,000. b) Income would decrease by $8,000. c) Income would increase by $140,000. d) Income would increase by $8,000.

What principles determine the appropriateness of transfer prices under U.S. regulations?

What will be an ideal response?