The University of Devonport consists of six faculties and an administration unit. Under the university's management philosophy, each faculty is treated as an independent entity. Each faculty is responsible for its own budget and financial decision-making. A new course in the Faculty of Geography (FG) requires some input from a member of staff of the Faculty of Modern Languages (FML). The two faculties are in dispute about the 'price' that FG should pay FML for each hour of the staff member's time. FML argues that the hourly rate should be 175. This is based on the FML budget for this year, which in broad outline is as follows: Academic staff salaries (25 staff) Faculty overheads (all fixed costs) Total FML budgeted costs '000 1,062 903 1,965 Each academic is expected to teach on average for 15 hours a week for 33 weeks a year. FML wishes to charge FG an hourly rate which will cover the appropriate proportion of the member of staff's salary plus a 'fair' share of the overheads plus 10 per cent for a small surplus. FG is refusing to pay this rate. One of FG's arguments is that it should not have to bear any other cost than the appropriate share of the salary. FG also argues that it could find a lecturer who works at the nearby University of Tavistock and is prepared to do the work for 50 an hour, as an additional, spare-time activity. FML argues that it has deliberately staffed itself at a level which will enable it to cover FG's requirements and that the price must therefore cover the costs. The university's Vice-Chancellor (VC) (its most senior manager) has been asked to resolve the dispute. You are the university's finance manager and have arranged to meet the VC to help her reach a decision on this arrangement. Required: a) Present to the VC the calculations that FML have used in order to charge an hourly rate of 175 per hour. b) What are the arguments in favour of a transfer price of 175 per hour? c) What are the arguments in favour of a transfer price of 50 per hour?