management accounting

QUESTION 3 [15 MARKS) CD is a producer of soft drinks. The company has two divisions: Division C and Division D. Division manufactures metal cans that are sold to Division D and also to external customers. Division produces soft drinks and sells them to external customers in the cans that it obtains from Division C. Division Cannual budget information Market selling price per 1 000 cans N$ 130 Variable costs per can N$0.04 N$2.4 million Fixed costs 40 million cans Production capacity External demand for cans Demand from Division D 38 million cans 20 million cans N$0.50 Division D annual budget information Selling price per canned soft drink Other variable costs per canned soft drink (excluding the can) Cost of a can (from Division C) Fixed costs N$0.15 At transfer price N$1 750 000 Transfer Pricing Policy: Division C is required to satisfy the demand of Division D before selling cans externally. The transfer price for a can is full cost-plus 20%. REQUIRED: MARKS a) Produce the profit statement for each Division showing sales, costs and the overall total profit 11 of CD. (show external sales and inter-divisional transfers separately where appropriate). b) Suppose Division D supplies the external market with 20 million cansland Division's demand 4 has grown to the total production capacity of Division from the current 20 million cans. Division external selling price is N$150 per 1,000 cans Calculate the minimum transfer price to Division D