A company making plastic products has two divisions. The bulk plastic division produces coloured plastics from raw materials. The plastic containers division uses these base materials to make containers for a range of food items. The bulk plastic division has a capacity of 40,000 tonnes per year. At present they sell all their output to external customers for $120 per tonne. Their variable production costs are $65 per tonne and fixed costs are $720,000 per year. The plastic containers division uses 10,000 tonnes of coloured plastic per year to produce containers. At present it purchases all of this from an external supplier for $105 per tonne. The division makes 10,000,000 containers per year and sells them for $0.25 each. Its other variable costs of production are $0.07 per container and its total fixed costs are $750,000. Required: 1. What are the objectives of an effective transfer price system? (2 marks) - Maximum 100 words 2. If the bulk plastics division has no spare capacity what transfer price would it require to sell its output to the plastic containers division? Show your calculations and explain clearly why you gave your answer. (4 marks) - Maximum 100 words 3. Assume now that an external customer cancelled a contract for 10,000 tonnes of bulk plastic. This means that the bulk plastics division has sufficient spare capacity to supply all of the plastic containers division's requirements. What are the minimum and maximum possible transfer prices that the divisions would be prepared to accept? Show your calculations and explain clearly why You gave your answer (6 marks) - Maximum 100 words