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Bendigo Ltd has two divisions. The Delta Division transfers partially completed components to the Omega Division at a predetermined transfer price. The Delta Division's production costs per unit include $250 of variable production costs and $65 of applied fixed overhead costs. The Delta Division has no spare capacity, and it could sell all of its components to outside buyers at $420 per unit in a perfectly competitive market. The Omega Division incurs variable costs of $130 in addition to the transfer price for the Delta Division's components and sells its finished products at $590 per unit. Required: 1. Determine a transfer price using the general rule. (1 mark) 2. How would the transfer price change if the Delta Division has spare capacity? (1 mark) 3. Assume that a transfer price has been set as the Delta Division's absorption cost plus a 10% markup and both divisions have spare capacity. The Omega Division has a special offer of $460 per unit for its product. a. Calculate the transfer price. (1 mark) b. Is this special offer in the best interests of Bendigo Ltd as a whole? Why? (2 marks) c. Would an autonomous Omega Division's manager accept or reject the special offer? Is this decision in the best interests of Bendigo Ltd as a whole? Explain. (2 marks) d. How could the situation be remedied using the transfer price? (2 marks)

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