Transfer Pricing Delima Manufacturing Sdn Bhd has two operating departments: Cutting and Designing. Cutting produces a very high-quality fabric that is used in making curtains. The budgeted cost of a square the meter of the fabric is made up as follows:

Variable cost RM Labour 4 Material 7 11

Fixed cost Overheads 13 Total cost 24 The budgeted output for Cutting is 300,000 sq. meters each year and the market price for the fabric is RM80 per sq. meter. The design makes curtains and uses 1.1 sq. meters of this fabric to make 1 sq. meters of curtains. The management of Delima Manufacturing insists that the Cutting department must sell to the Designing department as much of the material as is required to meet its needs and any surplus output can then be sold to outside businesses. The management of Delima Manufacturing also insists that Designing must buy all its requirements for this fabric from the Cutting department. The budgeted output for the Designing department is 200,000 sq. meters of curtains. The designing department sells its work for RM75 per sq. meter and, in addition to the cost of the fabric, incurs fixed and variable costs totaling RM35 per sq. meter at the budgeted output. What will be the budgeted profit for each operating division, assuming a transfer pricing policy based on; Variable cost method.