QUESTION 3 Morning Glory is a company that practices decentralization organizational structure as divisional managers are given autonomy to decide pertaining to their division operations. The company policy permits divisional managers to decide on whether to sell their divisional products to external customers or transferred internally. Each divisional manager is evaluated on the basis of return on investments and EVA. This company manufactures a variety of furniture and it has a number of divisions, including Sofa Division and Mattress Division. Sofa Division produces sofa bed and Mattress Division produces mattresses, including mattress model that fits into the sofa bed and can be used by Sofa Division. Mattress Division has production capacity of 100,000 mattresses per year and currently the mattresses are sold to external customers at RM40. The full cost of the mattress is as follows: Direct materials Direct labour Variable overhead Fixed overhead Cost per unit RM 15.00 5.00 3.00 5.00 28.00 On the other hand, Sofa Division currently purchases the mattress that is used to manufacture the sofa bed from an external supplier at RM45 per unit and incurred additional cost of RM120 per unit to complete its final product. The sofa bed is sold at RM238 per unit. Recently, Erika the manager of Sofa Division has approached Mattress Division's manager to see if he wanted to offer a lower price for internal transfer. Erika has suggested a transfer of 50,000 units mattress at RM35 per unit. Required: a. Supposed that the Mattress Division is operate at full capacity and able to sell all units produced to external customers. Evaluate the impact of the transfer price of RM35 per unit on the profit of both divisions and the company. Should Mattress Division accept the transfer price? b. Assuming that the Mattress Division is currently selling 50,000 mattresses, determine the minimum and maximum transfer price. Should Mattress Division consider the transfer at RM35 per mattress. c. Assuming that there is no external demand of the mattress, determine the minimum and maximum transfer price would be set by Mattress Division. d. Supposed that Morning Glory policy is that all transfer prices be set at full cost plus 20% mark-up. Do you think both divisions would take the transfer? Justify your answer by giving necessary computation