Spicy Red Pty Ltd has two divisions: Chilii Division (that farms chilies) and Sauce Division (that makes chilli sauce). Spicy Red requires that all transfers between divisions be recorded at variable cost as a transfer price. Divisional managers choose their sources of customers and suppliers.

The capacity for the Chilli Division is250,000kg of chillies per month. Chilli Division sells40%of its chillies to the Sauce Division, while the remainder of the sales are to external customers. The monthly budget information for the Chilli Division, based on full capacity, is presented below.

Sauce Division External Sales Kilograms of chillies sold 100, 000 150, 000 250, 000 ales ($) 10, 000 22, 500 32, 500 Variable costs {$) 10,000 15,000 25,000 Fixed costs ($) 6, 8, 000