Question: don't provide wrong solution please 10. Internal Transfer Decision - Opportunity Costs vs Spare Capacity - Different Scenarios HEAVENS LTD has three divisions: Sun, Moon

 don't provide wrong solution please 10. Internal Transfer Decision - Opportunity

don't provide wrong solution please

10. Internal Transfer Decision - Opportunity Costs vs Spare Capacity - Different Scenarios HEAVENS LTD has three divisions: Sun, Moon and Star. It also deals with two other outside Companies: Mercury and Neptune. Sun can buy a component from Moon or from Mercury, which will meet Moon's Market Price of 200 per unit. If Sun buys from Mercury, Mercury in turn will buy a component from Star for 40 per unit. The Outlay Costs to Star of supplying this component are 720 per unit. In filling Sun's order, Moon would incur Outlay Costs of 165 per unit. Assume that Moon is working at full capacity and can provide the component to Neptune at the same Market Price of * 200 per unit and with the same outlay costs of 165 per unit. 1. What alternative would be best for HEAVENS as a whole - Sun buying from Mercury or Moon? Show your calculations. 2. What Transfer Price should be used to guide the Managers of Sun and Moon so as to maximise Overall Company Net Inflow (Cash Inflow)? 3. Suppose that Moon has sufficient extra capacity to supply the component to both Sun and Neptune at the same time. How would this change your answers in parts (1) and (2) above? Show supporting calculations

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