Performance Measurement and control

please help me a question below

Losama Limited consists of three divisions, which formerly were three independent manufacturing companies. Loyeti Corporation and Sadota Company merged in 1991, and the merged corporation acquired Masoka Company in 1992. The name of the corporation has subsequently been changed to LOSAMA Limited, and each company became a separate division retaining the name of its former company.
The three divisions have operated as if they were still independent companies. Each divisional management is responsible for sales, cost of operations, acquisition and financing of divisional assets, and working capital management. The corporate management of LOSAMA Limited evaluates the performance of the divisions and divisional managements on the basis of return on investment (that is, net income divided by invested capital). Masoka division has just been awarded a contract for a product which uses a component that is manufactured by the Sadota division as well as by outside suppliers. Masoka used a cost figure of Shs 400 for the component manufactured by Sadota in preparing its bid for the new product. This cost figure was supplied by Sadota in response to Masota’s request for the average variable cost of the component and represents the standard variable manufacturing cost and variable selling and distribution expense.
Sadota has an active sales force that is continually soliciting new prospects. Sadota’s regular selling price for the component Masoka needs for the new product is Shs 700. Sales of this component are expected to increase. However, the Sadota management has indicated that it could supply Masoka with the required quantities of the component at the regular selling price less variable selling and distribution expenses. Masoka’s management has responded by offering to pay standard variable manufacturing cost plus 35 per cent.

The two divisions have been unable to agree on a transfer price. Corporate management has never established a transfer price policy because inter-divisional transactions have never occurred. As a compromise, the corporate Assistant Finance Manager has suggested a price equal to the standard full manufacturing cost (ie no selling and distribution expenses) plus a 20 per cent mark up. This price has also been rejected by the two divisional managers because each considered it grossly unfair.

The unit cost structure for the Sadota component and the three suggested prices are shown below:
Regular selling price Shs 700
Standard variable manufacturing cost Shs 300
Standard variable manufacturing costShs 120
Variable selling and distribution expensesShs 100
Shs 520
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Regular selling price less variable selling
and distribution expenses (Shs 700 – 100) 600
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Standard variable manufacturing cost plus 35%
(300 x 1.35) 405
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Standard full manufacturing cost plus 20%
(420 x 1.20) 504
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Required:
(a) Discuss the effect each of the three proposed prices might have on the Sadota division management’s attitude toward intracompany business.
(b) Is the negotiation of a price between the Masoka and Sadota divisions a satisfactory method to solve the transfer price problem? Explain your answer.
(c) Should the corporate management of LOSAMA Limited become involved in this transfer price controversy? Explain.

What help do you need? You cannot expect me to answer the questions for you!!!

You must have an answer in the same book in which you found the questions and so you should ask about whatever it is in the answer that you are not clear about – then I will help.

Have you watched the free lectures on transfer pricing? The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.