**Enormous Engineering (EE) Ltd** is a large multidivisional engineering company with interests in a wide variety of product markets. The Industrial Products Division (IPD) sells component parts to consumer appliance manufacturers, both inside and outside the company. One such part, a motor unit, is sold solely to external customers but is sourced internally from the Electronic Motor Division (EMD). The EMD makes the motor to IPD specifications and does not expect to be able to sell it to any other customers.

**In preparing the 2001 budgets**, IPD estimated the number of motor units it expects to be able to sell at various prices as follows:

| Price (Ksh) | Quantity Sold (Units) |
|-------------|------------------------|
| 5,000 | 1,000 |
| 4,000 | 2,000 |
| 3,500 | 3,000 |
| 3,000 | 4,000 |
| 2,500 | 6,000 |
| 2,000 | 8,000 |

IPD then sought a quotation from EMD, which offered to supply the motors at Ksh 1,600 each, based on the following estimate:

| Item | Kshs |
|----------------------------------|------|
| Materials and bought-in parts | 200 |
| Direct labour costs | 400 |
| Factory overhead (150% of direct labour costs) | 600 |
| Total factory cost | 1,200|
| Profit margin (33⅓% on factory cost) | 400 |
| Quoted price | 1,600|

Factory overhead costs are fixed. All other costs are variable. Although IPD considered the quoted price to be on the high side, it believed it could still sell the completed unit at a profit since it incurred costs of only Ksh 400 (materials Ksh 100 and direct labour Ksh 300) on each unit made. Therefore, it placed an order for the coming year.

Upon reviewing the budget for 2001, the finance director of EE noted that the projected sales of the motor unit were considerably less than those for the previous year, which was disappointing as both divisions concerned were working well below their capacities. On inquiry, IPD stated that the price reduction required to sell more units would reduce rather than increase profit, and the main problem was the high price charged by EMD. EMD stated they required the high price to meet their target profit margin for the year and that any reduction would erode their pricing policy.

**Required:**

a. Develop tabulations for each division, and for the company as a whole, that indicate the anticipated effect of IPD selling the motor unit at each of the prices listed.

b.
i. Show the selling price which IPD should select in order to maximize its own divisional profit on the motor unit.
ii. Show the selling price which would be in the best interest of EE as a whole.