138) Briefly describe the conditions that should be met for market-based transfer pricing to lead to optimal decision
making among subunits of a large organisation.
139) Discuss the possible problems a corporation might have if its operations are totally decentralised.
140) The Assembly Division of The Melbourne Car Company has offered to purchase 90 000 batteries from the
Electrical Division for $104 per unit. At a normal volume of 250 000 batteries per year, production costs per
battery are as follows:
Direct materials $40
Direct manufacturing labour 20
Variable factory overhead 12
Fixed factory overhead 40
The Electrical Division has been selling 250 000 batteries per year to outside buyers at $136 each; capacity is 350
000 batteries per year. The Assembly Division has been buying batteries from outside sources for $130 each.
a. Should the Electrical Division manager accept the offer? Explain.
b. From the company's perspective, will the internal sales be of any benefit? Explain.