5. TPA plc operates two subsidiaries, X and Y. X is a component manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of product W produced. Subsidiary X transfers to subsidiary Y all of the components needed to produce product W. Subsidiary X also sells components on the external markets. The following budgeted information is available for each subsidiary. X Y Market price per component $800 Market price per unit of W $1200 Production costs per component $600 Assembly costs per unit of W $400 Non-production fixed costs $1.5m $1.3m External demand (in units) 10,000 12,000 Capacity (in units) 22000 Taxation rates 25% 30% The production cost per component is 60 per cent variable. The fixed production costs are absorbed based on budgeted output. X sets a transfer price at marginal cost plus 70 per cent. Calculate the post-tax profit generated by each subsidiary and briefly discuss the implications of divisionalisation and transfer pricing. (8 marks)