Question 2 Tronics Ltd. manufactures electronics and operates many divisions. The following information relates to two divisions, Trol and Tro2: - While Trol is a division that manufacturers electronic components, Tro2 is a division that assembles electronic components into the final product. Both divisions produce one type of output. Tro2 requires one component from Trol for every unit of the final product produced. Trol transfers to Tro2 all of the components needed to produce the final product. Trol also sells the electronic components to extemal customers. The budgeted information below is available for cach of the two divisions: Tro 1 (RM) Tro 2 (RM) Market price per electronic component 850 Market price per unit of final product 1.300 Production costs per electronic component 650 Assembly costs per unit of final product 450 Non production fixed costs 1,800,000 1,300,000 External customer demand 15.000 units 35,000 units Production capacity 50,000 units Taxation rates 33% 32% Trol sets a transfer price at cost plus 25% Required: (a) Calculate the after tax profits generated by Trol and Tro2 if the transfer takes place. (11marks) (b) Explain TWO (2) objectives of transfer pricing system that the divisional managers must keep in mind. (5 marks) () Do you think the divisional manager of Tro2 will be motivated to accept the transfer? Explain your point of view. (4 marks) (d) Assume that the divisional manager of Tro2 refuses the transfer due to low earnings. Suggest a transfer pricing method that may be suitable in motivating the transfer to take place? Justify your answer. (5 marks) [Total: 25 Marks]