The following hypothetical case considers the transfer popsicle sticks from the Sticks Department to the Connoisseur Department as part of the production of Peters' connoisseur ice cream sticks line. The Sticks Department produces popsicle sticks in batches of 200. The cost to produce each batch is estimated as follows:

Direct materials $2.75 Direct labour $0.40 Variable overhead $1.00 Fixed overheard $0.75 There is an external market for the for the Sticks Department's popsicle sticks (external price = $10 per batch). Sales staff from the Sticks Department earn a commission of 5% for sales to external customers. Required: Provide and discuss an example (include financial figures and workings) which illustrates how the transfer price for popsicle sticks could be set using cost-plus pricing based on absorption costing with a negotiated mark-up (2 marks). Provide and discuss examples (include financial figures and workings) which illustrate how transfer prices for popsicle sticks could be set using the general transfer price rule if the Sticks Department had: No spare capacity, Some spare capacity, and Sufficient spare capacity to meet external and internal demand (3 marks).