Saleh Manufacturing Company has two independent business divisions - Anu and Manu. Anu Division currently buys a machinery part from outside suppliers for $10. Current needs of the parts total 10,000 units per month. Manu Division produces the parts and would like to supply Anu Division if an appropriate price can be determined. The Management Accountant of Manu Division has calculated the following costs of the part:

Direct materials: $5.50

Direct labor: $1.50

Variable overhead: $1.25

Fixed overhead: $3.75

Total cost: $12.00

Manu Division currently produces and sells 55,000 units each month to other companies at an average selling price of $15. Manu Division has an overall capacity to produce 100,000 units per month.

Required:

1.What is the minimum transfer price for Manu Division? Explain why?(2 + 2 = 4 marks)

2.What is the maximum transfer price for Anu Division? Explain why?(2 + 2 = 4 marks)

3. What should be the better course of action in the best interest of Saleh company overall? Critically explain.(2 marks)