(e) Assume the same facts as in te or reject the special order? Why? 3. Independent of requirements 1 and 2. assume that the frame division has limited capacity and can ons supply half of the required 200 units of the double-paned window to the glass division. To supply all of the 200 units to the glass division, the frame division would have to forgo production and sales of 150 units of another product to external customers. These external sales typically yield a contribution of $120 perunt Use the general rule to calculate the transfer price, and explain the likely decision that the two divisions will make about the transfer P12.40 Basic transfer pricing: manufacturer 2012.12 Motor Mobile Enterprises (MME) designs, manufactures and sells speciality motion control components for 12.13 use in specific medical robotic equipment. MME has two manufacturing divisions: motor division medical applications division The motor division produces electric motors, 20 per cent of which are sold to the medical applications division of MME. The remainder are sold to outside customers. MME treats both divisions as investment centres and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be made at a transfer price based on standard variable cost. The motor division's estimated sales and standard cost data for the year ending 31 December, based on capacity of 100 000 units, are as follows: To outside customers Sales Variable costs Fixed costs Gross margin Unit sales To the medical applications division $ 500 000 (450 000) (200 000) $(150 000) 54 000 000 (1 800 000 600 000 SI 600 000 20 000 The motor division has an opportunity to sell the 20 000 units that it currently sells to the medias applications division to a new outside customer at a price of $40 per unit. The medical applications division can purchase its requirements from an outside supplier at a price of $45 per unit. Required: 1. Assuming that the motor division wishes to maximise its profits, should the motor division take on the customer and drop its sales to the medical applications division? Explain your answer. 2. Assume, instead, that MME permits division managers to negotiate the transfer price. The managers as or on a tentative transfer price of $40 per unit, to be reduced based on an equal sharing of the add gross margin to the motor division resulting from the sale to the medical applications division of 20 000 motors at $40 per unit. What would be the actual transfer price? 3. Assume now that the motor division has an opportunity to sell the 20 000 motors that the applications division would buy to the same customers that are buying the other 80 000 motorspor by the motor division. The motor division could sell all 100 000 motors to outside customers at a price $50. What actions by each division manager are in the best interests of MME? 4. Under the scenario described in requirement 3, use the general transfer pricing rule to cause transfer price that the motor division should charge the medical applications division for motors 5. student of MME? Justify your