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Double A Manufacturing Sdn Bhd is a locally incorporated resident company carrying on the business of manufacturing and selling components for electrical products. The Supply
Double A Manufacturing Sdn Bhd is a locally incorporated resident company carrying on the business of manufacturing and selling components for electrical products. The Supply Division makes these components that can be either be sold to external customers or transferred internally to Assembly Division which uses the component in its final product. The annual data relating to this component are as follows: 40,000 units RM30 Annual production capacity Selling price of the item to outside customers Variable cost per unit Direct materials Direct labour Variable overhead Variable selling Fixed cost per unit RM5.00 RM4.00 RM3.00 RM150 RM4.50 The variable selling expenses are avoidable if the part is sold internally. Assembly Division requires 25,000 units per year and is currently paying outside supplier RM26 per unit. Required: (Show all calculations) If Supply Division has an external demand of 15,000 units, what is the minimum transfer price that Supply Division can offer to Assembly Division? Explain the rationale for your answer. (b) If Supply Division has an external demand of 40,000 units, what is the minimum transfer price that Supply Division can offer to Assembly Division? Should Assembly Division accept the price offered by Supply Division? Explain the rationale for your answer. (c) If Supply Division has an external demand of 20,000 units, what is the lowest transfer price acceptable by the Assembly Division? Explain the rationale for your
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