2 Rolex Electronics Corporation manufactures motherboards for computers. The company is divided into two divisions: Manufacturing and Programming. The manufacturing division is responsible for manufacturing the motherboards whereas the responsibility of the programming division is to do all necessary adjustments required to meet customer specifications. The average total cost per unit of the boards in the manufacturing division is about 45, and the average total cost per board incurred in the programming division is about 10. The average selling price of the boards is 70. The company is operating at full capacity and increasing the volume of production is not a feasible alternative. In the past, the managers of the two divisions have negotiated a transfer price. The average transfer price has been about 50, resulting in the manufacturing division recognising a profit of about 5 per board and the programming division recognising a profit of about 10 per board. Each of the managers receives a bonus that is proportional to the profit reported by his division. Mr. Andrew Dawson is responsible for managing the manufacturing division. He has announced that he is no longer willing to supply boards to the programming division. This is due to the fact that a the senior purchasing executive for another Electronics Company, which is a computer manufacturer, has indicated that they are willing to purchase, at 65 per unit, all the boards that the manufacturing division can supply and is willing to sign a long-term contract to that effect. Mr. Andrew Dawson has indicated that he has offered the boards to the programming division at 62.5 per board on the grounds that selling and distribution costs would be reduced by selling inside. Mr. Sykes, manager of the programming division refused the offer on the grounds that the programming division would show a loss at this transfer price. Mr. Alan Sharp has appealed against the manufacturing division managers intentions, to the General Manager of the company arguing that the manufacturing division should be prohibited from selling outside. Mr. Alan Sharp has indicated that a preliminary investigation suggests that he cannot buy these boards for less than about 64 outside. Therefore, allowing the manufacturing division to sell outside would effectively doom the programming division. Required: a) Briefly highlight the main characteristics of a good transfer pricing system. b) Based on the information given in the above case, evaluate the transfer pricing system of Rolex Corporation Limited and recommend a transfer price to Rolex Corporation. c) In light of the content of the case above provide recommendations to the programming division of Rolex Corporation? d) In light of theory and empirical evidence critically evaluate different transfer pricing techniques used by a modern organisation