Alenda Ltd split into two diisions:Division Alen and Division Dar.Diviision Dar currently buys the components from Division Alen,which also sells them externally to other companies.

The following data is available for both divisions:

Division Alen

Selling price per component to Division Dar K$13$

Selling price per Component to external customers K$15$

Costs per Component:

Materials K$3$

Labour costs K$4$

Annual fixed overheads K$2,200,000$

Current annual production capacity and sales components$-$

both internal and external sales$($units$)$ K$350,000$

Maximum annual external demand for components$($units$)$ K$200,000$

Division Dar.

Selling price for each product K$180$

Cost per product:

Componenent from Division Alen K$13$

Other materials from externalsuppliers K$45$

Labour costs K$35$

Annual fixed overheads K$5,460,000$

Annual production and sales$($units$)150,000$

Maximum annual market demand $($units$)180,00$

In addition to the materials and labour costs above,Division Alen Alen incurs a variable cost of K$1$ per Component for all components it sells externally.

Currently,Head Office's purchasing policy only allows Division Dar to purchase the components from Division Alen.Recently Division Alen refused to sell Division Dar any more than the current level of components it supplies to it$.$

The manger of Divion Dar is unhappy.She has a special industry contact who she could buy the components from at exactly the same price chrged by Division Alen if she were given the autonomy to purchas from outside the group.

After discussion with bothof the divisional managers and to ensure that the maangers are not demotivated,Head Office has now agread to change the purchasing policy to allowDivision Dar to buy externally,provided that it optimises the profits of the group as a whole.

Under the current transfer pricing system,prepare a profit statement showing the profit foraech of the divisions and for AlenderLtd as a whole.

Assuming that the new group purchasing policy will ensure the optimisation of group profits,calculate and discuss the number of components which Division Dar should buy from Division Alen and the number of components which Division Alen should sell to external customers.

State five aims of transfer pricing.