The AB Ltd. has two divisions, X and Y. one of the parts produced by division X is used in the manufacture of a product that is assembled at division Y. the part is not unique and there is a readily defined market such that X can sell outside the firm and Y can buy from outside. The following information is descriptive of the normal expectations of division X:

Capacity to produce the part (units)	1,25,000
External sales at Rs 100 per unit (units)	1,00,000
Transfer to division Y (units)	25,000
Costs:
Variable manufacturing cost per unit	Rs 84
Variable selling costs (on external sales only but not incurred on internal transfers)	2
Fixed manufacturing cost (based on 1,25,000 units)	6
Fixed selling cost (based on 1,00,000 units)	1

The division Y presents the following data on the assumption of a volume of 25,000 units (one part is needed for each unit of its own production):

Variable manufacturing cost per unit (exclusive of transfer price or outside purchase price)	Rs 100
Variable selling expenses per unit	6
Fixed manufacturing cost	10
Fixed selling expenses	4
Selling price of finished product	240

Recommend:

1. If division X could sell 1,25,000 units at Rs 100 each in the outside market, what transfer price would the company management prefer in order to provide proper motivation to division Y?
2. As management accountant, would you advise division Y to buy at the transfer price determined in part (a)?
3. Assume the situation and the transfer price determined in part (a). If the selling price dropped to Rs 200, should Y buy at that price? Would this be desirable from the point of the firm? Why?
4. Assume that division Xs product did not have an outside demand in excess of 1,00,000 units and its total fixed manufacturing cost could be reduced by 10 percent, if the volume of production were reduced to 1,00,000 units, what is the appropriate transfer price?
5. Suppose that X divisions maximum outside demand is 1,10,000 units at Rs 100, and there is no other usage for the capacity. What transfer price(s) should the company management prefer?
6. Suppose the unit selling price of Ys product is Rs 180; one of its customers is also a customer of division X; division Y refuses to buy the part from the outside market at Rs 100 since the selling price of Rs 180 would not be high enough to even cover the variable costs. If division X does not lower the transfer price, division Y will not sell to this customer who, in turn, will probably cancel the usual order of 50,000 units to division X; there is no demand for the product and no other usage of Xs capacity; fixed costs would not change at either division. What is the lowest transfer price that the division X would be well advised to accept? Support your recommendations with computations.
7. Assume outside purchase price for Division Y