Please answer 4 and 5 only 2.11Ajax Division of Soap Corporation produces soap, 20 percent of which are sold to AxionDivision of Soap Corporation. The remainder is sold to outside customers. Soap treats itsdivisions as profit centers and allows division managers to choose their sources of sale andsupply.variable cost as transfer price. Ajax Division's estimated sales and standard cost data for thevear ending December 31, 2000, based on capacity of 100,000 units, are as follows:Corporate policy requires that all interdivisional sales and purchases be recorded atAxionOutsidersP900,000(P900,000)(300,000)(300,000)20,000P8,000,000(3,6000,00)(1,200,000)320,000080,000SalesVariable cóstsFixed costsGross marginUnit salesAjax has an opportunity to sell the 20,000 units shown above to an outside customer at aprice of P75 per unit. Axion can purchase its requirements from an outside supplier at a price ofР85perunit.Required:1. Assuming that Ajax Division desires to maximize its gross margin, should Ajax takeon the new customer and drop its sales to Axion in the current year? Why?2. Assume, instead, that Soap Corporation permits division managers to negotiate thetransfer price for the year. The managers agreed on a tentative transfer price of P75unit, to be reduced based on an equal sharing of the additional gross margin toperAjax resulting from the sale to Axion of 20,000 units at P75 per unit. What would bethe actual transfer price for the year?3. Assume now that Ajax Division has an opportunity to sell the 20,000 units that AxionDivision would buy to the same customers that are buying the other 80,000 unitsproduced by Ajax. Ajax Division could sell all 100,000 units to outside customers ata price of P100. What actions by each division manager are in the best interest ofSoap Corporation? lular to compute the transfer price. At what amount should Ajax Division charge Axion5. Will the transfer price computed in requirement (4) result in the most desirable4. Under the scenario described in requirement (3), use the general transfer pricing ruleTelsueJ OL Jd4. Under the scenario described in requirement (3), use the general transfer prici5. Will the transfer price computed in requirement (4) result in the most desioutcome from the standpoint of Soap Corporation? Justify your answer. (ATbleadapted)Division for the units?(AICPA

This question deals with the transfer pricing concept. Transfer pricing applies when one unit or the…

to compute the transfer price. At what amount should Ajax Division charge Axion 5. Will the transfer price computed in requirement (4) result in the most desirable 4. Under the scenario described in requirement (3), use the general transfer pricing rule outcome from the standpoint of Soap Corporation? Justify your answer. (AICPA Division for the units? adapted)