Beta division of Sayarrat Bhd produces electric motors. The division sold 20 percent of them to Sigma division and 80 percent are sold to external customers. Sayarrat Bhd treats its divisions as profit centres and allows division managers to choose whether to sell or buy from internal divisions. Corporate policy requires that all interdivisional sales and purchases be transferred at variable cost. Beta division estimated sales and standard costs for the year ended 31 December based on a capacity of 50,000 units are as follows:

	Sigma Division RM	External Customers RM
Sales	450,000	4,000,000
Less: variable costs	450,000	1,800,000
Contribution margin	-	2,200,000
Less: fixed costs	150,000	450,000
Operating income/(loss)	(150,000)	1,750,000
Units sales	10,000	40,000

Beta division has an opportunity to sell the 10,000 units to an external customer for RM75 per unit. Sigma division is allowed to purchase the units it needs from an external supplier for RM85 each.

1. Assuming that Beta division desires to maximise operating income, should it take on the new customer and discontinue sales to Sigma division? Why?

2. Assume that Sayarrat Bhd allows division managers to negotiate transfer prices. The managers agreed on a tentative price of RM75 per unit, to be reduced by an equal sharing of the additional operating income that results from the sale to Sigma of 10,000 motors at RM75 per unit. Calculate the companys new transfer price.

c. Assume that Beta division could sell all units to outsiders for RM100 per unit. Should Beta takes this opportunity?