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ACW271 MANAGEMENT ACCOUNTING II TOPIC 6 TUTORIAL Question 1 Mobe Co manufactures electronic mobility scooters. The company is split into two divisions: the scooter division (Division S) and the motor division (Division M). Division M supplies electronic motors to both Division S and to external customers. The two divisions run as autonomously as possible, subject to the group's current policy that Division M must make internal sales first before selling outside the group; and that Division S must always buy its motors from Division M. However, this company policy, together with the transfer price which Division M charges Division S, is currently under review. Details of the two divisions are given below. Divisions Division S's budget for the coming year shows that 35 000 electronic motors will be needed. An external supplier could supply these to Division S for $800 each. Division M Division M has the capacity to produce a total of 60 000 electronic motors per year. Details of Division M's budget, which has just been prepared for the forthcoming year, are as follows: Budgeted sales volume (units) Selling price per unit for external sales of motors Variable costs per unit for external sales of motors 60 000 $850 $770 The variable cost per unit for motors sold to Division Sis $30 per unit lower due to cost savings on distribution and packaging. Maximum external demand for the motors is 30 000 units per year. Required: Assuming that the group's current policy could be changed, advise, using suitable calculations, the number of motors which Division M should supply to Division S in order to maximize group profits. Recommend the transfer price or prices at which these internal sales should take place

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