Lumala Cycles has two divisions, P and Q which manufacture expensive bicycles. Division P

produces the bicycle frame and Division Q assembles the rest of the bicycle onto the frame.

There is market for both the subassembly and the final product. Each division has been

designated as a profit centre. The transfer price for the subassembly has been set at the long

run average market price. The following data are available for each division.

2

Selling price for the final product

Long run average selling price for intermediate product

Incremental costs for completion in division Q

Incremental costs in division P

The manager of division Q has made the following calculation

Selling price for final product

Transferred-in-costs

Incremental costs for completion

Contribution (loss) on product

LKR

3.000

2.000

1.500

1.200

3,000

(2.000)

(1,500)

(500)

Required:

Should transfer be made to division Q if there is no unused