Question Five (5 marks) A) Oxco has two divisions, A and B. Division A makes a component for air conditioning units which it can only sell to Division B. It has no other outlet for sales. Current information relating to Division A is as follows: Marginal cost per unit $100 Transfer price of the component $165 Total production and sales of the component each year 2,200 units Specific fixed costs of Division A per year $10,000 Cold Co has offered to sell the component to Division B for $140 per unit. If Division B accepts this offer, Division A will be shut.

Required If Division B accepts Cold Cos offer, what will be the impact on profits per year for the group as a whole?

B) With Reference to SRO 1194(I)/2018 dated 2 October 2018 issued by Securities and Exchange Commission of Pakistan [SECP] (Related Party Transactions and Maintenance of Related Records) Regulations, 2018 [Regulations], Briefly explain following;

ARMS LENGTH BASIS

APPROVAL OF RELATED PARTY TRANSACTIONS