DIVISION A

They can produce 40,000 units without losing any external sales. They can produce a total of 150,000 units but the maximum external sales are only 110,000. Does the answer in your Revision Kit not explain this?

The first 40,000 can be transferred at marginal cost because they are not losing them any external sales. The remaining 20,000 have to be transferred at marginal cost plus lost contribution, because they will be losing them external sales.