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Question 4 Keygate Plc is a multidivisional company, and its managers have been delegated full...

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Question 4 Keygate Plc is a multidivisional company, and its managers have been delegated full responsibility and complete autonomy to accept and reject transfers from other divisions. Division A produces a subassembly with a ready competitive market. One unit of this sub-assembly is currently used by Division B for its final product which is sold externally for N2,400. Division A, charges Division B the market price for the sub-assembly, which is A1,400 per unit. Variable costs are A1,040 and N1,200 for Divisions A and B, respectively. Both divisions have capacity for 2,000 units. The Manager of Division B feels that Division A should transfer the sub-assembly at a lower price. Required: a) Compute the contribution for both divisions and the company as a whole. b) Is the Manager of Division B likely to accept the transfer price? [12 marks] c) Assume that Division A can only sell in the open market 1,000 units at A1,400 per unit, and a 40% price reduction is necessary to sell full capacity externally. State three (3) options available to the Manager of Division A and compute the contribution from each option. What decision should the Division A Manager take? [10 marks]

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