Sharp Co has two divisions: Division C makes cameras and division D produces tripods for cameras. Division C currently buys tripods from division D, which also sells externally to other customers. The following data is available for both divisions: Division D $ Selling price per tripod to division C 45 Selling price per tripod to external customers 50 Cost per tripod Materials 10 Labour 12 Monthly fixed overheads 200,000 Annual production capacity and sales of tripods - 500,000 (both external and internal units) Maximum annual market demand for tripods (units) 300,000 Division C $ Selling price for each camera including the tripod 350 Cost per camera: Tripod from division D 45 Material costs 90 Labour costs 75 Monthly fixed overheads 400,000 Annual production and sales of cameras (units) 200,000 Maximum annual market demand for cameras (units) 250,000 Division D incurs an additional cost of $1 for each tripod it sells to external customers. Currently division C is only allowed to purchase tripods from division D, according to the policy set by the Head Office. However division D is refusing to increase the supply of tripods to Division C at the current transfer price. The manager of division C has a potential alternative supplier who could supply tripods at the same price as division D is charging. After a long negotiation process the Head Office agreed to change the policy and give division C autonomy to purchase tripods from an external supplier, provided that the group's profits are going to be maximised.

(a) create a profit statement for Sharp Co as a group and for both divisions separately under the current transfer pricing system. Please ensure that external and internal sales are shown separately where applicable. (9 marks) (b) Advise how many tripods division C should buy from division D under the alternative plan and how many tripods division D should sell to external customers in order to maximise the group's profits. (6 marks) (c) Discuss what maximum transfer price should be set to encourage division D to supply division C with enough tripods in order to meet their annual demand. Support your discussion with calculations.