Transix Resources Ltd has two divisions: Mining and Metals. The Mining Division extracts iron ore from its site in Western Australia, at a standard variable production cost of $80 per tonne. The Mining Division would incur an additional selling cost of $10 per tonne to sell its iron ore on the open market at $140 per tonne. The iron ore can also be transferred to the Metals Division, where it is processed into steel at an additional standard variable production cost of $100 per tonne. The steel is sold to external customers at $340 per tonne.

Required:

(a)Assume that the Mining Division has spare capacity. Calculate the transfer price using the general rule.

(b)Assume that the Mining Division has no spare capacity. Calculate the transfer price using the general rule.

(c)Assume that the Mining Division has no spare capacity. Calculate the transfer price if it is based on standard variable production cost plus a 30% markup. Is it likely that the internal transfer will take place?