Question 4 (12 marks) SDN company has two divisions. Division A makes a component X, which is transferred to the Division B. Component X is further processed by the Division B and is sold to customers at a price of $200 per unit. Division A is currently required by the company to transfer its total output of 250,000 units of component X to Division B at 120% of full manufacturing cost. Unlimited quantities of component X can be purchased and sold to outsider at $100 per unit. Division B can also purchase the same component at $100 per unit. The following table shows the manufacturing cost per unit of Division A and B for 2020 Division A Division B Direct cost $34 $31 Variable Indirect cost Fixed Indirect cost $27 $9 $12 $18 Required 1. Calculate the operating income for both divisions for the 250,000 units of component X transferred if the company adopted the following transfer pricing method (a) market price and (b) 120% of full manufacturing cost. (4 marks) 2. Assume the company allows divisions to negotiate a transfer price and there is idle capacity in Division A to supply all units required by Division B. What is the minimum and maximum transfer price that Division A and Division B will accept respectively? Explain (2 marks) 3. Evaluate and explain the transfer price policy of 1(a) and 1 (b) using the criteria of goal congruence, evaluating division performance, motivating management effort and preserving divisional autonomy. (6 marks)