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CoursHeroTranscribedText: QUESTION 2 (25 MARKS) Dapur Cantik Bhd (DCB) is a company specializing in the manufacture and sales kitchen cabinets. Each project consists of a main of kitchen cabinet unit plus a set of fittings of cabinets. The company is split into two divisions, KC and F. Division KC manufactures the cabinets and Division F manufactures sets of fittings of cabinets. Currently, all of Division KC's sales are made externally. Division F, however, sells to Division KC as well as to external customer. The following data is available for both divisions: Division KC Current selling price for each kitchen cabinet RM450 Cost per cabinet: Cabinet Fittings from Division F RM75 Other materials from external suppliers RM200 Labor costs RM45 Annual fixed overheads RM7,440,000 Annual production and sales (units) 80,000 Maximum annual market demand for kitchen cabinet (units) 80,000 Division F Current external selling price per set of fittings RM80 Current price for sales to Division KC RM75 Cost per set of cabinet fittings Materials RM5 Labour cost RM15 Annual fixed overheads RM4,400,000 Maximum annual production and sales of cabinet fittings (units) 200,000 (including internal and external sales) Maximum annual external demand for sets of cabinet fittings (units) 180,000 Maximum annual internal demand for sets of cabinet fittings (units) 80,000 The transfer price charged by Division F to Division KC was negotiated some years ago between the previous divisional managers, who have now both replaced by new managers. Head Office only allows Division KC to purchase its fittings from Division F, although the new manager of Division KC believes that he could obtain fittings of the same quality and appearance for RM65 per set, if he was given the autonomy to purchase from outside the company. Division F makes no cost savings from supplying internally to Division KC rather than selling externally.Required: a) Prepare a profit statement showing the profit for each of the divisions and for DCB as a whole under current transfer price policy. Your sales and costs figure should be split into external sales and inter-divisional transfers, where appropriate. (10 marks) b) Head office is considering changing the transfer pricing policy to ensure the maximization of company profits without demotivating either of the divisional managers. Division KC will be given autonomy to buy from external suppliers and Division F to supply to external customers in priority to supplying to Division KC. Calculate the maximum profit that could be earned by DCB if transfer price is optimised. (10 marks) c) Discuss TWO (2) issues of encouraging divisional managers to take decisions in the interest of the company as a whole. (2 marks) d) Provide THREE (3) recommendations of a policy that should be adopted by DCB