Need help for question 1

Question 1 (c) Jupiter Pte Ltd ("JPL") has two divisions - X and Y; which are supported by an Administrative ("Admin") division. The Admin division provides printing, filing and stationery services. Estimated information for the year ending 20X2 is as follows. (1) JPL has decided that transfer price from Admin Division to divisions X and Y should be set at activity-based costs. An external company has approached Division X to offer their administrative services (exactly the same services as those currently provided by Admin Division) at a fee. (0) Compute the maximum price that Division X will be willing to pay this external company. (ii) If the external company is willing to meet Division X's price demand (as computed in part (c)(0)), should JPL allow Division X to outsource their administrative requirements? Explain and state any necessary assumptions. (6 marks) Admin Division Capital Employed Profit (before Admin division costs) Total Costs: Division Sm 80 20 Division Y Sm 50 16 Sm 28 14 (2) A target of 15% Return On Investment (ROI) has been set for each division. Question 2 (3) An Activity-Based Costing (ABC) analysis has revealed the following for the Admin Division: Service provided to: Sales Solar Security manufactures and sells motion-sensing security lights that are powered by solar energy. This product is marketed to customers with free replacement warranty. A component, Alpha, is purchased from an external supplier and assembled into Solar Security's lighting product. One unit of Alpha is used for each unit of lighting. The costs associated with Alpha are as follows: Division 20,000 Division Y 10,000 Admin Division Cost (Sm) 3.6 Advertising Production Cost Driver No. of customers No. of product types No. of units No. of employees 16 24 4.8 120,000 120,000 Purchase price : $5 per unit Ordering cost : $200 per order regardless of the size of the order Storage cost : $0.30 per unit per year 1.6 Human Resource 1,600 400 4.0 (4) The cost of capital is 14% Solar Security normally places an order equivalent to the Economic Order Quantity (EOQ) when the inventory level of Alpha drops to 1,000 units. Delivery normally takes 1% weeks. Required: (a) Compute the ROI for Division X, Division Y and the Admin Division if JPL's transfer pricing policy is: (1) Solar Security operates in a highly competitive market, and is constantly upgrading their product in order to maintain its market share. There are a number of alternative suppliers of security lighting products in the market. Some of the competitors charge a lower price but supply lower quality lighting products; whereas others supply higher quality lighting products but for a much higher price than Solar Security. The life cycle of products ir this market is short. Manufacturers are constantly introducing new products or variations of existing products. Price and quality are the two main factors influencing the buying decisions of customers. To allocate total Admin cost on a 50/50 basis; (11) Total Admin cost to be distributed equally plus a profit mark-up of 30%; and Total Admin cost to be charged on an activity-based costing approach. (15 marks) Discuss the implications of each transfer pricing policy in part (a) for the three divisions. How would you advise JPL with respect to performance management? (15 marks) While preparing its budget for the coming year, Solar Security has estimated that thu market demand for its lighting product will be 200,000 units and that its share will b 40,000 units. Its largest competitor has a 6% market share, with approximately 30 othe companies sharing the remainder of the market. The cost details of each unit of Solm Security's lighting product are as follows: (b)