Bharat Coal limited, based in Madhya Pradesh, India, sells high-end coal. They have 2 divisions

• Meghalaya Coal mining division, which mines coal in northern Meghalaya.
• Habiganj Coal Mining Division, which uses coal in manufacturing high end granites.

The Habiganj divisions yield is 50%: It takes 2 tons of raw coal to produce 1 ton of high-end granite.

Although all of the Meghalaya divisions output of 8,000 tons of coal is sent for processing in Habiganj, there is also an active market for coal in Meghalaya. The foreign exchange rate is 0.80 Rs = Tk 1. The following information is known about the two divisions:

Meghalaya Coal Mining Division
Variable cost per ton of raw coal	56	Rs
Fixed cost per ton of raw coal	96	Rs
Market price per ton of raw coal	256	Rs
Tax rate	30%	Rs
Habiganj Coal Mining Division
Variable cost per ton of raw coal	43	TK
Fixed cost per ton of raw coal	115	TK
Market price per ton of raw coal	1190	TK
Tax rate	35%	TK

1. Compute the annual pre-tax operating income, in Tk of each division under the following transfer-pricing methods: (a) 150% of full cost and (b) market price.
2. Compute the after-tax operating income, in Tk, for each division under the transfer-pricing methods in requirement 1. (Income taxes are not included in the computation of cost-based transfer price, and Bharat Coal does not pay income tax in Tk on income already taxed in Rs.)
3. If the two division managers are compensated based on after-tax division operating income, which transfer-pricing method will each prefer? Which transfer-pricing method will maximize the total after tax operating income of Bharat Coal?
4. In addition to tax minimization, what other factors might Bharat Coal consider in choosing a transfer pricing method?