Margo Limited has two (2) divisions, the Makeba and the Kubang Division. Currently the Makeba Division sells a part on the market for $960 per unit. The Kubang Division wants to buy the part from the Makeba Division for a price yet to be determined. The production capacity of the Makeba Division is 24,000 units annually.

The cost per unit data for the Makeba Division is as follows:

Direct Materials	$360
Direct Labour	$420
Variable overhead	$140
Fixed overhead	$105

Required:

Explain and calculate the transfer prices at which Makeba Division should offer to transfer the part to the Kubang Division in order that the group profit maximizing decisions may be taken on financial grounds in each of the following independent situations:

(a) The Makeba Division has no spare capacity and the Kubang Division wants to purchase 18,000 units. (3 marks)

(b) Makeba Division has excess capacity to supply all parts needed by the Kubang Division. (3 marks)

(c) Makeba Division has excess capacity for only 9,000 of the total 15,000 parts needed by the Kubang Division. However, the Kubang Division has an alternative use of this excess capacity which provides to a contribution of $6 for each part. (4 marks)

(d) Discuss briefly two (2) benefits to management of establishing responsibility centres. (4 marks)