(%) 18 8.000 Question 1 Sage Company Ple is a multi-divisional business providing goods and services across a number of industries. Three of its divisions work closely and have been classified as a group within the company. The divisions are: Sage-One, Sage-X and Sage-Multi. The performance of the three divisions for the 2019 financial year are summarized below: Net Profit ROI Residual Income (N 000) (N 000) Sage-One 10,000 21 6,000 Sage-X 15,000 Sage-Multi 20.000 15 5.000 The Divisional Manager of Sage-Multi has insisted that his division should be evaluated using net profit, and is of the opinion that his division has done very well compared to the other divisions within the group. The Divisional Manager of Sage-One is concerned that the transfer price of an intermediate product, RB14x, is set at marginal cost, despite the fact that there is an external market for the product. Sage-One transfers RB14x to Sage-Multi and the Divisional Manager feels that this transfer price is detrimental to the profitability of the division. Sage-X produces W10-EQ, which is its main product, and sells to the external market and therefore, does not bother with transfer pricing. W10-EQ has the following details: Selling price N200; variable material cost N40; variable labour cost N30; variable production overhead N20; and fixed cost N1,980,000. The Divisional Manager of Sage-X is concerned about the profitability of W10-EQ and is need of information to support his decision-making. All three Divisional Managers report to a Group Manager, to whom they have taken their concems on the different issues they face. The Group Manager is keen to resolve all these concems in a strategic manner so as not erode the motivation of all the affected Divisional Managers. The Group Manager has setup a meeting with all three Divisional Manager in three (3) days' time to address the issues. Required: Present a strategic analysis of the issues for submission to the Group Manager, along with recommendations on how to address the identified issues and challenges. Note - Your analysis and recommendations should provide good explanations for each issue identified. [50 marks] 2