Zozo

Hello john
I have a question zozo has identified a market for a new product,the mgpulli ,at a selling price of $115per unit. The company believe it will be able to sell 2000 units of mgpulli per month.
The estimated cost structure for the product per unit is as follows:raw material 8.5kg@2 per kg
Special ingredient Z:2 Kg
Other variable cost are 60%of selling price
Zozo has been offered supplies of special ingredient Z at a transfer price of 15 $ per kg by mg which is a part of the same group of companies.this is the same price that mg charges to it’s external costumer.mg bases it’s external prices on total cost plus 25% profit markup .this cost has been estimated as 75%variable and 25% fixed . internal transfer to zozo would save $1.50 per kg of variable packing cost to be avoided .there are currently no supplies of special ingredient Z

Required:
a) calculate the maximum transfer price that would be acceptable to zozo for special ingredient Z
b) calculate and explain the maximum transfer price that mg would be prepared to accept for supplying special ingredient Z to zozo under each of the following situation

1)mg has monthly spare production capacity for 4000 kg special ingredient Z for which no external market is available.
2)mg has an external market for all of it’s production of special ingredient Z at a selling price of 15 per kg
3) condition are as per (2)but mg has an alternative use for some of it’s spare production capacity.this alternative use is equivalent to 2000kg of special ingredient Z and would earn a contribution of $6000

C) assume that condition are as per b 1 where mg has a spare capacity of production of 4000 kg of special ingredient z.mg is insisting on a transfer price of $15 per kg of special unit z