You are the manager of Marvels Division of the Safe Company. Your divisions main product is the ProductSolid which sells to its regular customers for P7.50 each. ProductSolid has a variable manufacturing cost of P4.25. Currently, the division is operating at its capacity. The manager of IvyLeague Division has asked you to supply them of ProductSolid for only P5 each. IvyLeague Division will use the ProductSolid to produce ProductLiquid and sell to large multinational companies. Furthermore, the IvyLeague Dvision is operating at 50% capacity. The following is the breakdown of costs of ProductLiquid: Purchased of other parts from outside supplier............................................... P22.50 ProductSolid from Marvels Division................................................. 5.00 Other variable costs ........................................................................... 14.00 Fixed overhead and administration ............................................. 8.00 Total cost per brake unit ............................................................... P49.50 Although the P5 price for the ProductSolid represents a discounted regular P7.50 price, the manager of the IvyLeague Division believes that the price scheme is necessary if his division is to get the contract in supplying large multinational companies. He has heard through an insider that one of the biggest prospective customer plans to reject his bid if it is more than P50 per unit. Furthermore, if the IvyLeague Division will be forced to buy from the outside supplier, it will either not get the contract or it will suffer loss at a time when it is already operating at only its current capacity. ProductLiquids manager argues that price concession is peremptory to the financial performance of both his division and the company as as whole. In addition, Safe Company uses return on investment (ROI) to measure divisional performance.

Required: 1.On your perspective as the manager of Marvels Division, would you agree that your division supply the ProductSolid to the IvyLeague Division for P5 each as requested? Show all computations, and defend your answer.

2.On a company-wide perspective, would it be profitable should the transfer takes place if the ProductLiquid can be sold for P50? Show all computations, and defend your answer.

3.Based on what you have learned, should it be possible for the two managers to agree to a transfer price in this particular situation? Why or why not? Defend your answer. Please take note that if your answer is yes, indicate the range would that transfer price lie? http://

4.As a management accountant of the company and not as divisonal manager, what are the behavior problems from the organization as a whole and as managers that you found in this situation and what professional advice would you give the executives to rectify the situation?