Tubbies Berhad is a company specialising in the manufacture and sale of bathtubs. Each tub consists of a main unit plus a set of tub fittings. The company is split into two divisions, A and B. Division A manufactures the bath and Division B manufactures sets of tub fittings. Currently, all of Division A's sales are made externally. Division B, however, sells to Division A as well as to external customers. Both divisions are profit centres. The following data is available for both divisions: Division A: Current selling price for each tub Cost per tub: Fitting from Division B Other materials from external suppliers Labour costs Annual fixed overheads RM 450 75 200 45 7,440,000 Annual production and sales of tubs (units) 80,000 Maximum annual market demand for tubs (units) 80,000 Division B: Current external selling price per set of fittings Current price for sales to Division A RM 80 75 Cost per set of fittings: Material Labour costs Annual fixed overheads 5 15 4,400,000 Maximum annual production and sales of sets of fittings (units) 200,000 (including internal and external sales) Maximum annual external demand for sets of fittings (units) Maximum annual internal demand for sets of fittings (units) 180,000 80,000 The transfer price charged by Division B to Division A was negotiated some years ago between the previous divisional managers, who have now both been replaced by new managers. Head Office only allows Division A to purchase its fittings from Division B, although the new manager of Division A believes that he could obtain fittings of the same quality and appearance for RM65 per set, if he was given the autonomy to purchase from outside the company. Division B makes no cost savings from supplying internally to Division A rather than selling externally. Required: a) Under the current transfer pricing system, prepare a profit statement showing the profit for each of the divisions and for Tubbies Berhad as a whole. Your sales and costs figures should be split into external sales and inter-divisional transfers, where appropriate. (9 marks) b) Head Office is considering changing the transfer pricing policy to ensure maximisation of company profits without demotivating either of the divisional managers. Division A will be given autonomy to buy from external suppliers and Division B to supply external customers in priority to supplying to Division A. Calculate the maximum profit that could be earned by Tubbies Berhad if transfer pricing is optimised. (9 marks)