The East Division manufactures an aluminium device that can be used by the West Division as a component in their product or can be sold to outside customers. Operating data for the two divisions are as follows:

East Division

Unit selling price to outside customers	RM 27
Variable production cost per unit	RM 12
Variable selling and administrative expense per unit Total fixed production cost	RM 6 RM500,000*

West Division:

Purchase cost per unit of aluminium device from outside supplier before trade discount RM 27

* Capacity 100,000 units per year

The West Division now purchases the aluminium device from an outside supplier at a regular price per unit of RM27 less 15% trade discount. Since the aluminium device manufactured by the East Division is of the same type and quality used by the West Division, consideration is being made to buy internally rather than from the outside supplier.

The companys accountant has determined that half of the variable and administrative costs can be avoided on any intra company sales. Top management wants to treat each division as an autonomous unit with independent profit responsibility.

Required:

Assume that East Division is currently selling 70,000 units a year to the outside customers and that the West Division needs 30,000 units per year:

What is the lowest transfer price that can be applied between the two divisions?

What is the highest transfer price that can be applied between the two divisions?

Assume that the West Division finds an outside supplier that will offer the required device for RM 21.10 per unit, can the East Division offer with the same price?

Assume that the East Division is currently operating at full capacity and all the products are currently sold to outside customers. If the East Division is required to supply 30,000 units to the West Division, what will be the transfer price per unit that should be charged to the West Division?