Landscaping Co is a company which manufactures and sells lawnmowers and has two divisions. The Lawnmower division manufactures the lawnmowers and sells all of its products externally. The Engine division produces the motor and both supplies the Lawnmower division and sells motors to external customers. One motor is needed for every lawnmower. The following data has been produced by the management accountant: Lawnmower Division Current selling price for each lawnmower 1,200 Cost per lawnmower materials and labour, excluding the motor 215 Annual fixed overheads 2,300,000 Maximum production of lawn mowers (units per annum) 120,000 Current external demand for mowers (units per annum) 100,000 Engine division Current external selling price for each motor 685 Cost per motor (materials and labour) 360 Annual fixed overheads 1,850,000 Maximum production of motors (units per annum) 150,000 Current external demand for motors (units per annum) 30,000 Currently, Garden Co requires the Lawnmower division to purchase all of its motors from the Engine division. There is a company policy that the transfer price should be set at a rate to cover variable cost.

The Managing Director of the Engine Division has been approached by an external customer who has offered to buy an additional 20,000 motors. Landscaping Co now wishes to set a transfer pricing policy that would ensure the maximisation of the group profits. Assume that Landscape Co would now allow its divisions to buy and sell externally. What is now the profit for the Lawnmower Division (in '000)?

What is now the profit of the Engine Division (in '000)?

What is now the profit for the Group (in '000)?