A.N. Vinod, the chief accounts officer of XYZ Ltd, has set a number of transfer prices to be used by service departments within the firm, all of which used to be cost centres. One is for typing...

A.N. Vinod, the chief accounts officer of XYZ Ltd, has set a number of transfer prices to be used by service departments within the firm, all of which used to be cost centres. One is for typing services. The charge is `100 per hour which is based on total budgeted hours of available service and total budgeted costs for the typing service pool. The manager of one of the operating departments, a profit centre, has obtained a price of `70 per hour of typists’ time from an outside agency. The task will take about 100 hours. The manager informs A.N. Vinod and B.C. Mehta, the manager of the typing service cost centre, of the outside price. In turn, he was informed that he could avail of the outside facility if he so desired, but the price set internally would not be lowered from the existing rate of `100 per hour. Comment on the position taken by the managers. Budgeted costs for a pool are about 75 per cent fixed. Make your recommendations.