The Indian Spirit Company is operating with two divisions. Division H is producing a product line that is required as

a component part of the product being manufactured by Division W.

For Division H, the costs of producing the component part per unit are:

Direct Materials P 10

Direct labor P 8

Variable Factory Overhead P 5

Fixed Factory overhead P 2

The product of Division H is being sold n a highly competitive market for P30 per unit.

Division W is currently buying 80% of the production output of Division H at a negotiated price of P 28 per unit. It is

Expected tat 25,000 units of product will be produced by Division H.

With emphasis on divisional welfare rather than the company's welfare, a new transfer price must be developed. It is

suggested that a 40% mark-up on cost will be added when transferring the product from Division H to Division W.

An additional processing cot for Division W is P 8 per unit. The selling price of the product of Division W is P 45 per

unit.

REQUIRED:

Determine the gross profit per unit of the product from Division W under each of the following independent

assumptions:

A. Transfer price is full-cost based.

B. Transfer price is cost-based plus mark-up.

C. Transfer price is based on negotiated price.

D. Transfer price is mark-based.