Question: Sita Food Enterprises has a division called Maidstone Bakery which produces spiced bread. Some of its output is sold on the external market under different labels and transfers some internally to the company's Nan Division. Maidstone Bakery transports bread in racks containing one dozen loaves and its average selling price and variable costs of production are:
Selling price per rack (in external market) - £3.00
Variable cost of producing one rack of loaves - £2.00
Variable transportation cost per rack - £0.25
Required: Assuming that the Maidstone Bakery has no excess capacity and is able to sell all its output on the external market, compute the minimum transfer price to be set for the internal transfer to Nan Division if the objective is to achieve profit maximisation for the company as a whole.