Future Electronics Ltd $($FE Ltd$)$ operates in Country G and has a division $($Beetec$)$which also operates in Country G$.$ Beetec Division makes electronic circuit boardsfor inclusion in other products. These are sold in packs of $100$ circuit boards.Beetec division sells these to outside companies in Country G and to MantleDivision operating in Country M$.$ Both countries have the same currency.Beetec Division has the following budgeted information for July.Monthly Capacity $80,000$ packs of circuit boardsVariable cost per pack of $100$ circuit boards $15$Monthly Fixed costs $700,000$External Demand in Country G $60,000$ packs of circuit boards @$40$ per packMantle Division Demand $($country M$)30,000$ packs of circuit boardsMantle Division has the following budgeted information for July.The circuit boards are incorporated into components for the motor industry.Each component needs $2$ circuit boards. Components are sold in packs of $100.$Monthly Capacity $15,000$ packs of componentsSelling price per pack of $100$ components $180$Variable cost per pack of $100$ components$($excluding price of circuit boards$)50$Demand for components $15,000$ packsMonthly Fixed costs $500,000$Due to the international trading situation, FE Ltd Head office has set thetransfer price for Circuit boards at variable cost$+20\%.$ The trading rule betweendivisions is: sales to other divisions are met before external sales are taken.The rate of taxation is $50\%$ in Country G and $30\%$ in Country M$.$

Required: $($a$)$ From the information provided above, show the budgeted after tax net income of each division and the company as a whole. Explain why FE Ltd has decided on this transfer price. $(8$ marks$)($b$)$ The tax authorities in Country G might insist that, for taxation purposes, the OECD arms$-$length approach be taken to setting the transfer price. FE Ltd wish to explore the effects of the following possible situations: i$)$ a market based transfer price is imposed. ii$)$ an opportunity cost based transfer price is imposed. Show the impact on the net income of each Division of each of the transfer price methods mentioned above. Briefly comment on the results, assuming that the Divisional managers are partially rewarded by their net income achievement.