Xn company manufacture and sell cricket bats. Xn company has two departments Dept. P ( making of cricket bats from wood) and Dept. Q ( add the cover and complete the product with the brand name printed). Dept P sells wooden Bats to Dept Q.

Dept. Q completes the product and sells the finished product to the external customer for OMR 70 per unit. Further information is as follows:

Dept. P Dept-Q

Number of units transferred/sold Material Cost per unit Labour Cost Other Variable costs per unit Annual Fixed costs

400 OMR 5

OMR 4 OMR 1

OMR 4000

400 OMR 3 OMR 3 OMR 1

OMR 3000

Required: i) Calculate Transfer Price based on Marginal Cost + 20%

ii) Calculate the budgeted annual profit for division P and Q and for Company as a whole under Marginal Cost + 20%

iii) Calculate Transfer Price based on Full Cost + 25%

iv) Calculate the budgeted annual profit for division P and Q, and for Company as a whole under Full Cost + 25%

v) Evaluate both divisional profits from the perspective of marginal and full cost transfer pricing and company.

vi) Discuss how the firm can achieve goal congruence using transfer pricing?