Post the decision to become a profit centre from the year 2026-27, SUGGEST an appropriate price range that can be explored in order to promote goal…

The plant has been working at full capacity during the year 2026-27. Out of the total capacity of 400,000 tons per annum, 240,000 tons are being supplied to UFL and the balance is being sold externally. Therefore, the minimum transfer price that BCPL will demand = Marginal cost per unit + Opportunity cost per unit = 30,000 per ton +130,000 per ton = 160,000 per ton of ammonium nitrate supplied to UFL. Opportunity cost per unit in this case will be the contribution lost that BCPL could have earned from external sales. The contribution from external sales is calculated as below: Contribution table External sales Selling price per ton 180,000 Less: Variable costs Variable manufacturing cost per ton 30,000 Variable costs on external sales 20,000 Total Variable costs per ton 50,000 Contribution per ton 130,000 Alternate method: The minimum transfer price can be the price an external customer would pay less any cost savings as a result of transferring internally. External market price is 180,000 per ton of ammonium nitrate. Cost savings on account of internal transfer would be additional variable delivery cost of 18,000 per ton ammonium nitrate to external customers. The price also includes - 2,000 per ton as variable advertising expenses. Market price net of any avoidable expenditure due to internal transfer is 160,000 per ton of ammonium nitrate. The maximum price that UFL will be ready to pay will be the external procurement price at which it can procure from third party suppliers, which is 170,000 per ton of ammonium nitrate. Hence, for the year 2026-27, the suggested price range that can be explored in order to promote goal congruence between Ramesh Shah (head BCPL) and Roshan Lal (director of operations UFL) would be a minimum of 160,000 per ton to 170,000 per ton of ammonium nitrate supplied.