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please solve complete in onr hour Division A, which is part of the ABC Group limited, manufactures only one type of product, a Bit, which
please solve complete in onr hour
Division A, which is part of the ABC Group limited, manufactures only one type of product, a Bit, which it sells to external customers and also to division C, another member of the group. ABC Group's limited policy is that divisions have the freedom to set transfer prices and choose their suppliers. The ABC Group limited uses residual income (RI) to assess divisional performance and each year it sets each division a target RI. The group's cost of capital is 13% a year. Division A Budgeted information for the coming vear is: Division C Division C has found two other companies willing to supply Bits: X could supply at 28 per Bits, but only for annual orders in excess of 50,000 Bits. Z could supply at 34 per Bits for any quantity ordered. Required: A. Division C provisionally requests a quotation for 60,000 bits from division A for the company year. i. Calculate the transfer price per Bit that division A should quote in order to meets its residual income target ii.Calculate the two prices division A would have to quote to division C, if it became group policy to quote transfer prices based on opportunity B. Evaluate and discuss the impact of the group's current and proposed policies on the profits of divisions A and C, and on group profit. Illustrate your answer's with calculations C. Briefly discuss the rationale for using a transfer pricing system
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