This computer science problem involves algorithmic thinking and programming concepts. The solution below explains the approach, logic, and implementation step by step.
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1. a) • Goal Congruence: Transfer pricing aims to ensure that decisions made by individual divisions align with the overall strategic objectives of the entire organization. • Performance Evaluation: It provides a basis for evaluating the profitability and efficiency of each division, as it determines the revenue for the selling division and the cost for the buying division. • Divisional Autonomy: Transfer pricing allows divisional managers to maintain a degree of independence in their decision-making, fostering a sense of responsibility and accountability. • Optimal Resource Allocation: By reflecting the economic value of goods and services transferred internally, it helps in allocating resources efficiently across different divisions within the company. b) Step 1: Calculate Variable Cost per unit and Total Fixed Costs. Selling Price (SP) per unit = Ksh. 320 Variable Costs (VC) per unit: Raw material = Ksh. 80 Direct labour = Ksh. 40 VC per unit = Ksh. 80 + Ksh. 40 = Ksh. 120 Fixed Costs (FC) per month: Rent = Ksh. 50,000 Supervisor salary = Ksh. 100,000 Total FC = Ksh. 50,000 + Ksh. 100,000 = Ksh. 150,000 Target Profit = Ksh. 450,000 Step 2: Calculate Contribution Margin (CM) per unit. CM per unit = SP per unit - VC per unit CM per unit = Ksh. 320 - Ksh. 120 = Ksh. 200 i) Determine break-even point in units and shillings. Break-even point in units (BEP units): BEP (units) = Fixed CostsCM per unit BEP (units) = Ksh. 150,000Ksh. 200/unit = 750 units Break-even point in shillings (BEP shillings): BEP (shillings) = BEP (units) × SP per unit BEP (shillings) = 750 units × Ksh. 320/unit = Ksh. 240,000 The break-even point is 750 units and Ksh. 240,000. iv) Determine number of units to be sold per month to attain the targeted profit. Units for Target Profit = Fixed Costs + Target ProfitCM per unit Units for Target Profit = Ksh. 150,000 + Ksh. 450,000Ksh. 200/unit Units for Target Profit = Ksh. 600,000Ksh. 200/unit = 3,000 units The number of units to be sold to attain the targeted profit is 3,000 units. ii) Determine margin of safety in units. Margin of Safety (units) = Units for Target Profit - BEP (units) Margin of Safety (units) = 3,000 units - 750 units = 2,250 units The margin of safety in units is 2,250 units. iii) Determine margin of safety in percentage. First, calculate Target Sales Revenue: Target Sales Revenue = Units for Target Profit × SP per unit Target Sales Revenue = 3,000 units × Ksh. 320/unit = Ksh. 960,000 Margin of Safety in shillings: Margin of Safety (shillings) = Target Sales Revenue - BEP (shillings) Margin of Safety (shillings) = Ksh. 960,000 - Ksh. 240,000 = Ksh. 720,000 Margin of Safety in percentage: Margin of Safety (\%) = Margin of Safety (shillings)Target Sales Revenue × 100\% Margin of Safety (\%) = Ksh. 720,000Ksh. 960,000 × 100\% = 75\% The margin of safety in percentage is 75%.