Private Systems Company's Microprocessor Division sells computer module to the company's Guidance Assembly Division which assembles completed guidance systems.

The microprocessor division has no excess capacity. The computer module costs TZS 1,000,000 to manufacture of which TZS 600,000 are variable costs, and it can be sold to external market at TZS 1,350,000.

a)Compute the transfer price for the computer module using the general transfer price rule

b)Assume that the two division negotiated transfer price to be 1,400,000 per computer module and the microprocessor division's production capacity is limited to produce 200 computer modules. The external market demand is limited to 150 units while the internal market require 100 units. Discuss what the Microprocessor Division manager is likely to do to maximize profitability of the Private Systems Company.