ROI and Transfer Pricing. You are given the following data regarding budgeted operations for Nigrini Mining Division of Cape Town Industries (monetary amounts are in South African rand):

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1. What average sales price per gram is needed to obtain the desired rate of return on average direct assets?
2. Assume that 30 percent of the 100,000 grams is sold to another division of the same company. The other division manager has balked at a tentative selling price of R4.00. He has offered R2.25, claiming that he can obtain the ore elsewhere for that price. The manager of Nigrini Mining Division has examined her data. She has decided that she could eliminate R 40,000 of inventories, R60,000 of plant and equipment, and R20,000 of fixed overhead if she did not sell to the other division. Should she sell for R2.25? Show computations to support your answer and briefly explain your reasoning.

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Average direct assets: Receivables Inventories Plant and equipment, net Total. Fixed overhead. Variable costs Desired ROI on average direct assets. Expected volume.... R100,000 300,000 200,000 R600,000 R200,000 R1.00 per gram of ore 20% 100,000 grams of ore