Fragrance Pty Ltd has two (2) divisions: the Cologne Division and the Bottle Division. The

company is de-centralised and each division is evaluated as a profit centre.

The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle

Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per

unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are

incurred on sales to the Cologne Division. The Cologne Division can purchase similar

bottles in the external market for $2.50. The Bottle Division has sufficient capacity to meet

all external market demands in addition to meeting the demands of the Cologne Division.

Using the general rule, calculate the minimum transfer price from the Bottle Division to

the Cologne Division. Explain your answer (4 marks)

b. For the period just ended, Trek Corporation's Trailer Division reported profit of $54 million

and invested capital of $450 million. Assuming an imputed interest rate of 10 per cent,

calculate Trailer's return on investment (ROI) and residual income. Explain what each

calculation of ROI and RI means for Trek. ( 6 marks)