Part B Until 31 December 20X6, TPI outsourced its entire sales administration function. Sales administration service costs amounting to $2,200,000 and $6,800,000 would have been incurred by Timberland and Manufacturing divisions respectively, during the year ending 31 December 20X7. However, a strategic decision was taken to establish an in-house sales administration division, known as the 'Admin' division, dedicated to servicing the needs of divisions Timberland and Manufacturing. The Admin division became operational on 1 January 20X7, and would not provide any service whatsoever to external parties. (1) Budgeted information with respect to the year ending 31 December 20X7 is as follows: Division Timberland Manufacturing Admin $million $million $million Average capital employed 39 91 6.5 Profit before admin costs 10 16 (2) The management accountant has prepared a detailed analysis of the budget of the Admin division for the year ending 31 December 20X7 which is as follows: Total Order Invoice Management Processing Generation Costs $'000 $'000 $'000 $'000 Salaries 4,100 2,900 450 750 Consumable items 900 400 450 50 IT costs 1,000 600 100 300 Sundry operating 1,000 300 400 300 costs Total 7,000 4,200 1,400 1,400(3) The estimated usage of the Admin division by the Timberland and Manufacturing divisions is as follows: Division Timberland Manufacturing Number of orders processed 217,500 652,500 Number of invoices gene rated 140,000 560,000 (4) TPI owns tree plantations from which it satisfies 100% of its requirement for year. The managing director of TPI has proposed that all services provided by the Admin division to the Timberland and Manufacturing divisions during the year ending 31 December 20x7 be invoiced on the basis of all costs plus 20%. Management costs would be shared equally between the Timberland and Manufacturing divisions. All other costs would be split according to the estimated usage data detailed in note (3) above