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B. The Electronic Division of MBC Company produces electronic pumps which it sells for RM40 each to outside customers. Based on normal volume of
B. The Electronic Division of MBC Company produces electronic pumps which it sells for RM40 each to outside customers. Based on normal volume of 500,000 units per period, the Electronic Division's cost per pump is RM23 for variable costs and RM6 for fixed cost. MBC has recently purchased a small company which makes automatic dishwashers. This new company is presently purchasing 100,000 pumps each year from another manufacturer. Since the Electronic Division has a capacity of 600,000 pumps per year and is now selling only 500,000 pumps to outside customers, management would like the new Dishwasher Division to begin purchasing its pumps internally. The Dishwasher Division is now paying RM40 per pump, less a 10% quantity discount. The Electronic Division could avoid RM1 per unit in variable costs on any sales to the Dishwasher Division. Required: a) Treating each division as an independent profit center, determine the acceptable transfer price. (2 marks) b) Now assume that the Pump Division is selling 600,000 pumps per year on the outside. Determine the appropriate transfer price. (3 marks)
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