Lokiped Bluetooth keyboard is a computer equipment supplier with retail stores throughout Malaysia. Many of the products it sells are bought in from outside suppliers but some are currently manufactured by Bluetooth keyboard's own manufacturing division 'KeyPad'. The prices (a transfer price) that KeyPad charges to the retail stores are set by head office and have been the subject of some discussion. The current policy is for KeyPad to calculate the total variable cost of production and delivery and add 30% for profit (current policy). KeyPad argues that all costs should be taken into consideration, offering to reduce the mark-up on costs to 10% in this case. The retail stores are unhappy with the current pricing policy arguing that it results in prices that are often higher than comparable products available on the market. KeyPad has provided the following information to enable a price comparison to be made of the two possible pricing policies for one of its products.

Based KeyBoard Hard Plastic: the board have 0.4 kg of high quality hard plastic in the final product. The manufacturing process loses 5% of all steel put in. Hard plastic costs RM4,000 per tonne (1 tonne = 1,000 kg) Other materials: Other materials are bought in and have a list price of RM3 per kg although Bluetooth keyboard secures a 10% volume discount on all purchases. The shears require 0.1kg of these materials. The labour time to produce shears is 0.25 hours per unit and labour costs RM10 per hour. Variable overheads are absorbed at the rate of 150% of labour rates and fixed overheads are 80% of the variable overheads. Delivery is made by an outsourced distributor that charges KeyPad RM0.5 per Based Keyboard for delivery. Required : a) Calculate the price that KeyPad would charge for the Based KeyBoard under the current policy. b) Calculate the increase or decrease in price if the pricing policy switched to new policy. c) If outside supplier charge much cheaper than KeyPad, should retail stores buy from outside supplier or not. Discuss your answer.