MacBook and MacBook Pro are two divisions at the Apple Group. The MacBook division manufactures batteries which it sells to other divisions and external customers. The MacBook Pro division has designed a new product with the name of MacBook Air, and has asked MacBook division to supply them with the battery component. Each unit of MacBook Air will require one battery component. This battery component will not be sold by MacBook to external customers. MacBook division has quoted a transfer price of R585 for each battery. It is the policy of Apple Group to reward managers based on their divisional returns on capital employed. Details of the monthly production for each division are as follows: MacBook division Output Battery components will be produced in batches of 1000 units. Variable cost R195 per battery Fixed costs R60 000 (these are incurred to produce the battery component) MacBook Pro division Output MacBook Air will be produced in batches of 1000 units The maximum customer demand is 6000 units. Variable costs R117 per unit plus the cost of the Battery component. Fixed costs R75 000 (there are incurred specifically to produce MacBook Air.

The relationship between monthly customer demand and the selling price of MacBook Air is shown below: Demand selling price per unit 1000 units R1 560 2000 units R1 430 3000 units R1 300 4000 units R1 170 5000 units R1 040 6000 units R871 Required: 4.1. Calculate, based on the transfer price of R585 per battery component, the monthly profit that would be earned because of selling MacBook Air by: a) MacBook division b) MacBook Pro division c) Apple Group (9) 4.2. Calculate the maximum monthly profit from the sale of MacBook Air for the Apple Group. (4) 4.3. Calculate, using the marginal cost of the battery component as the transfer price, the monthly profit that would be earned because of selling MacBook Air by: a) MacBook division. b) MacBook Pro division c) Apple Group. (5) 4.4. Discuss, using the above scenario, the problem of setting transfer price and suggest a transfer pricing policy that would help Apple Group to overcome the transfer pricing problems.