MCO Extension Sdn. Bhd. (MCO) has two operating divisions, Beeland and Ceeland. Both the divisions are treated as profit centres and the divisional managers' bonus are determined by the amount of profit earned for each year. Beeland produces material A and sells it to external customers for RM80 per kg. Beeland current production capacity for material A is 5,000 kg per month and it can sell all it produces to external customers. Total variable production costs incurred by Beeland for material A is RM50 per kg. Ceeland uses 0.5 kg of material A to produce 1 kg of one of its final products, Sinovac-21. The division sells the final product at RM100 per kg after incurring further processing costs of RM40 per kg (excluding internal transfer price). Ceeland produces 1,500 kg of Sinovac-21 per month. The existing transfer pricing policy for material A is for Beeland to supply to Ceeland its monthly requirement at the adjusted transfer price of RM78 per kg due to cost savings of RM2 per kg for internal transfers before it can sell to external customers. Required: (a) (b) Explain the appropriateness of the existing transfer pricing policy for material A. (7 marks) For each of the following independent scenarios, compute the appropriate transfer price (s) if the existing transfer pricing policy is scrapped: (i) Scenario 1 - A new external supplier has approached Ceeland and would agree to supply material A at a selling price of RM70 per kg. (6 marks) (ii) Scenario 2 - One of Beeland's customers has cancelled its monthly order of 1,000 kg of material A and the division has no way to find an alternative external buyer for the 1,000 kg of the material in the near future. (9 marks) [Total: 30 marks]