Marginal cost approach in transfer pricing

Pls sir I don’t seem to get what this approaches to setting transfer prices imply.
From my understanding based on studies.
We have
variable cost/marginal cost
Full cost
Full cost plus
Variable cost plus
And market price approaches

Picking on the variable cost approach.. To get the selling price/transfers price, we will add all costs (material, labour and variable overheads) but exclude the fixed overhead from the total cost.
If the question talks about variable cost plus then we can calculate the mark up after getting the variable overhead.

What confuses me now is the fact that I m trying to solve a question that requires me determine profits made if the transfer price is set at
I. A full cost plus 40%
II. Marginal cost
III. At market price.

When the author solves for the marginal cost, he still included the fixed cost in the total cost. I think that is only applicable in full cost approach. Please sir. I m talking about question 89 in the BPP practice kit. Thank you for your nice lectures.. They provide solid foundations with I am able to understand scenarios in questions.

89 FP Photocopiers and SW Ltd
FP sells and repairs photocopiers. The company has operated for many years with two departments, the Sales Department and the Service Department, but the departments had no autonomy. The company is now thinking of restructuring so that the two departments will become profit
. The Sales Department
This department sells new photocopiers. The department sells 2,000 copiers per year. Included in the selling price is $60 for a one year guarantee. All customers pay this fee. This means that during the first year of ownership if the photocopier needs to be repaired then the repair costs are not charged to the customer. On average 500 photocopiers per year need to be repaired under the guarantee. The repair work is carried out by the Service Department who, under the proposed changes, would charge the Sales Department for doing the repairs. It is estimated that on average the repairs will take 3 hours each and that the charge by the Service Department will be $136,500 for the 500 repairs.
The Service Department
This department has two sources of work: the work needed to satisfy the guarantees for the Sales Department and repair work for external customers. Customers are charged at full cost plus 40%.
The details of the budget for the next year for the Service Department revealed standard costs of:
Parts at cost
Labour $15 per hour
Variable overheads $10 per labour hour
Fixed overheads$22 per labour hour
The calculation of these standards is based on the estimated maximum market demand and includes the expected 500 repairs for the Sales Department. The average cost of the parts needed for a repair is $54. This means that the charge to the Sales Department for the repair work, including the 40% mark-up, will be $136,500.
Proposed Change
It has now been suggested that FP should be structured so that the two departments become profit centres and that the managers of the Departments are given autonomy. The individual salaries of the managers would be linked to the profits of their respective departments.
Budgets have been produced for each department on the assumption that the Service Department will repair 500 photocopiers for the Sales Department and that the transfer price for this work will be calculated in the same way as the price charged to external customers. However the manager of the Sales Department has now stated that he intends to have the repairs done by another company, RS, because they have offered to carry out the work for a fixed fee of $180 per repair and this is less than the price that the Sales Department would charge.
Required (a) Calculate the individual profits of the Sales Department and the Service Department, and of FP as a whole from the guarantee scheme if
(i) The repairs are carried out by the Service Department and are charged at full cost plus 40%;
(ii) The repairs are carried out by the Service department and are charged at marginal cost;
(iii) The repairs are carried out by RS.

b. Explain, with reasons, why a ‘full cost plus’ transfer pricing model may not be appropriate for FP. (2 marks