Part 8 Transfer pricing (15 marks) ABC Farm has two divisions, the Garden Division, and the Kitchen Division. The Garden Division grows apples for a variable cost of $6 per basket. Its sells apples to the Kitchen Division at a transfer price. The Kitchen Division bakes pies with the apples, and it sells these apple pies to outside customers for $2.00 per pie. It takes one basket of apples to make 10 pies. The Kitchen Division has variable manufacturing costs of $0.4 per pie in addition to the costs from the Garden Division. The transfer price is set at variable cost plus a mark-up, where the two divisions can equally share the contribution margin. Suppose that the Kitchen Division receives a special order to supplyr a party with 1000 pies. Competitors offer to sell apple pies for $1.4 per pie. Required (1) Calculate the transfer price. (5 marks) (2) If the Kitchen Division sets pie price based on its divisional prot, will the Kitchen Division propose a price lower than the competitors? {3 marks) (3) If the pie price is set by the ABC farm, will the pie price be lower than the competitor's price? (3 marks) (4) Use this case to comment on the Cost-based transfer pricing method {that is, setting transfer price at variable cost plus a mark-up) (4 marks)