1.1 QUESTION 1 (30 MARKS, 54 MINUTES) 000 units of a single product, the Himba. The Himba division currently makes use of 80% of their production capacity to manufacture 80 The financial results for the past year, ended 30 September 2020, were as follows: Sales (80 000 units) Less: Cost of sales N$'000 160 000 100 000 60 000 40 000 60 000 15 000 Variable cost 1.2 REQUIRED: 1.3 Fixed cost Gross profit Less: Selling and marketing expenses Net profit The division is unsure whether to keep their selling and production strategies the same for next year. A 10% increase in variable cost and a 5% increase in fixed cost are expected, although selling prices and selling and marketing expenses per product will remain unchanged due to market factors. N$ 2 650 N$ 2 500 N$ 2 000 N$ 1 800 The marketing manager has done research into the Himba product and noted that demand for the product is price sensitive. The estimated demand for the product next year at related prices as follows: Selling price (N$) Sales 45 000 Demand (units) 60 000 70 000 80 000 85 000 The Pupa division has expressed interest in buying 40 000 units (no more, no less) of the Himba product from the Himba division. A saving of 2% in respect of selling and marketing expenses is expected for these 40 000 units if transferred internally. The Pupa division can buy the Himba product in the external market at a cost of N$ 2 000 per product. Total annbution Variable cost conmibutione. Fixe cost Define Pricing and name and describe three major factors influencing pricing. Ignoring the possibility of internal sales, devise a sales strategy for the Hindjo division that will maximise the division's profits next year. Marks 5 9 Suggest a suitable transfer pricing range (minimum and maximum price) for the division that will lead to goal congruence for the company. You may assume that the division had implemented the strategy you determined in answer to 1.2 above. The selling price for next year has been communicated to customers and cannot be changed in the short term. TOTAL MARKS FOR QUESTION 1 16 30

QUESTION 1 (30 MARKS, S4 MINUTES) The Himba division currently makes use of 8056 of their production capacity to manutacture 80 000 units of a single product, the Himba The financial resuits for the past year, ended 30 September 2020 , were as follows: The division is unsure whether to keep their selling and production strategies the same for next year, A 10% increase in variable cost and a 5% increase in fixed cost are expected, although selling prices and selling and marketing expenses per product will remain unchanged due to market factors. The marketing manager has done research into the Himbs product and noted that demand for the product is price sensitive. The estimated demand for the product next year at related prices are ac halinas. The Pupa division has expressed interest in buying 40000 units (no more, no less) of the Himba product from the Himba division. A saving of 2% in respect of selling and marketing expenses is expected for these 40000 units if transferred internally. The Pupa division can buy the Himba sroduct in the external market at a cost of N\$2 000 per product