Prism Bhd is a highly decentralized company with each manufacturing division operating as a separate profit center. Each division manager has full authority for sourcing decisions and selling decisions. Division A of the company has been the major supplier of the 2,400 components that Division B needs each year.

However, when informed of Division A's plan to increase its selling price, Division B has announced that it has decided to purchase all of its components in the forthcoming year from two external suppliers at RM240.00 per component. Division A has recently increased its selling price for the forthcoming year to RM264.00 per component from RM240.00 per component in the current year.

Amanda Abraham, manager at Division A, feels that the 10% price increase is justified. She insists that due to the recent installation of a new high-technology manufacturing equipment which results in higher depreciation charges, coupled with an increase in labour costs, Division A will not be able to earn an adequate return on investment unless selling price is increased. Amanda wants you, the Vice President of Prism Bhd, to force Division B to buy all its components from Division A at the price of RM264.00. The relevant key data are as follows:

REQUIRED:

1. Compute the impacts on profits of Prism Bhd as a whole if Division B buys the components internally from Division A under each of the following scenarios:

Scenario A :	Division A has no alternative use for the facilities used to manufacture the components.
Scenario B :	Division A can use its facilities for other production operations, which will result in annual cash operating savings of RM34,800.00.
Scenario C :	Division A has no alternative use for its facilities and the external supplier drops the price to RM222.00 per component.

2. Compute the minimum transfer price in each of the scenarios.

3. As the Vice President of Prism Bhd, how would you respond to Amandas request that you force Division B to purchase all of its components from Division A? Would your response differ according to the three scenarios in (i)? Justify your answer.