A company has two divisions: forming and assembly. The forming division produces an item that is sold to assembly and sometimes externally. The product incurs the following cost per unit:

Direct material

$800

Variable selling

$200

Direct labour

$200

Fixed cost

$400

Variable overheads

$400

The product can be sold to an external customer for $2,000, but assembly wants to purchase the part for $1,800. Calculate the transfer prices based on the following independent scenarios:

(a) The forming division is operating at excess capacity. (3 marks)

(b) The forming division is operating at full capacity. (2 marks)

(c) Assuming the excess capacity could be rented to yield additional contribution margin of $2,500,000 per annum. The space is equivalent to 40,000 units of production. (3 marks)

(d) Discuss briefly two (2) benefits to management of establishing responsibility centres. (2 marks)