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Mesra Gembira manufactures electronic devices and has several divisions that serve as investment centres. Division M manufactures a product and sells it to other businesses
Mesra Gembira manufactures electronic devices and has several divisions that serve as investment centres. Division M manufactures a product and sells it to other businesses for RM16 per unit. It is currently producing 45,000 units per year at full capacity. The variable manufacturing cost per unit is RM9, and the variable marketing cost per unit is RM3. The company wishes to establish a new division, Division N, to develop an innovative new device that will rely on Division M's product. Each year, Division N will produce 30,000 units. Division N can currently buy a product equivalent to Division M's from Company X for RM15 per unit. Mesra Gembira, on the other hand, is considering transferring the necessary product from Division M. Required: a) Assume the transfer price is RM12 per unit. i. Should Division N buy internally? Show your computation. (4 marks) ii. iii. How would this price affect the profits of Division M? Show your computation. How would this price affect Mesra Gembira as a whole? Show your computation. (5 marks) (1 mark) b) What if the transfer price is RM13 per unit, how would this price affect Mesra Gembira as a whole? Show your computation
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