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What is the difference in Durian Divisions profit

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Question - Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10,000 bottles of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8,400 bottles.

Fruities Ltd requires that divisions should purchase inputs internally where available and adopts a cost-plus transfer price policy, where transfer price is set at variable cost plus 15%.

Therefore, Durian Division always satisfies the demand of the Juice Division first, before selling the remaining durian concentrate to external suppliers at the market price of $10 per bottle.

The variable cost of one unit of durian juice concentrate at Durian Division is $6.

What is the difference in Durian Division's profit if a market-price transfer price policy was adopted instead of the cost-plus transfer price policy?

Reference no: EM132517237

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