9 Case 3: Asterix Ltd (20 marks) Asterix Ltd has several divisions, which include the Extraction division and the Metal division. The Extraction Division extracts osmium, which it transfers to the Metal Division where osmium is processedinto an alloy and is sold to customers for $150 per unit. Asterix currently requires the Extraction Division to transfer its total annual output of 400,000 units of osmium to the Metals Division at total (actual) manufacturing cost plus 10%. Unlimited quantities of osmium can be purchased and sold on the open market at $90 per unit. The Extraction Division could sell all the osmium it produces at $90 per unit on the open market, but it would incur a variable selling cost of $5 per unit. There is currently sufficient demand in the open market to take in any quantity of osmium at $90. James Khong, the Extraction Division's manager, is unhappy transferring the entire output of osmium to the Metals Division at 110% of cost. In a meeting with Asterix management, he said, "Why should my division be required to sell osmium to the Metals Division at less than market price? For the year just ended in March, the contribution margin on Metals - Division was more than $19 million on sales of 400,000 units while the Extraction Division's contribution was just over $5 million on the transfer of the same number of units. My division is subsidising the profitability of the Metals Division. We should be allowed to charge the market price for osmium when we transfer it to the Metals Division." TO 1337 A