Sampson Ltd has two divisions: Moulding and Finishing. The Moulding Division produces moulds at a standard variable cost of $85 per unit. The moulds are further processed by the Finishing Division to finished products that are sold to customers at a price of $280 per unit. The additional standard variable cost in the Finishing Division is $105 per unit. The moulds can be purchased and sold on the external market at $130 per unit. The Moulding Division incurs an additional selling cost of $3 per unit when selling externally.

Required:

(a) Assume that the Moulding Division has spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark)

(b) Assume that the Moulding Division has no spare capacity. Calculate the transfer price using the general rule. Show workings. (1 mark)

(c) Assume that the Moulding Division has no spare capacity, and the transfer price is based on standard variable production cost plus a 40% markup. Compare the contribution margin resulted from the internal sales and external sales of screens. Is it likely that the internal transfer will take place? (2 marks)

(d) Assume that the Moulding Division has limited spare capacity and can only supply 70% of the required 5,000 moulds to the Finishing Division. To supply all of the 5,000 moulds, it has to forgo some sales to external customers. Use the general rule to calculate the transfer price per screen. Show workings. (2 marks)

(e) Assume that both divisions have spare capacity. The Finishing Division has been approached by an outside company with a special order for 700 units of finished product at $240 per unit.

(i) Is this offer in the best interests of the company as a whole? Why? (1 mark)

(ii) Assuming that the transfer price for the moulds is $120 per unit, calculate the contribution margin per unit that each division would receive from the special order. (2 marks)

(iii) Calculate the transfer price for moulds at which the contribution margin from the special order is divided equally between the two divisions. (1 mark)