3. XYZ Ltd. has two divisions - A & B. Division A manufactures a Component 'C'...

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3. XYZ Ltd. has two divisions - A & B. Division A manufactures a Component 'C' which is required by Division B for its product P. Division B requests Division A to supply 24,000 units of Component 'C' at Rs.60 per unit. Division A is not willing to supply at such a lower price as it can sell its entire existing production in the external market with 30% mark up on total costs. The following information is also available in respect of the two divisions-A & B. Product Existing production (units) Production Costs: Division A Component 'C' 40,000 (using 80% capacity) Direct Material per unit (Rs.) Direct Wages per unit (Rs.) Overhead per unit (Rs.) (60% fixed) External Selling Price per unit (Rs.) 25 15 20 Division B P 40,000 (using 100% capacity) 20 10 10 100 Determine the minimum transfer price per unit of Component 'C' at which Division A may transfer the same to Division B. Also show the operating profit of the divisions accordingly. [5+5] 3. XYZ Ltd. has two divisions - A & B. Division A manufactures a Component 'C' which is required by Division B for its product P. Division B requests Division A to supply 24,000 units of Component 'C' at Rs.60 per unit. Division A is not willing to supply at such a lower price as it can sell its entire existing production in the external market with 30% mark up on total costs. The following information is also available in respect of the two divisions-A & B. Product Existing production (units) Production Costs: Division A Component 'C' 40,000 (using 80% capacity) Direct Material per unit (Rs.) Direct Wages per unit (Rs.) Overhead per unit (Rs.) (60% fixed) External Selling Price per unit (Rs.) 25 15 20 Division B P 40,000 (using 100% capacity) 20 10 10 100 Determine the minimum transfer price per unit of Component 'C' at which Division A may transfer the same to Division B. Also show the operating profit of the divisions accordingly. [5+5]

Answer rating: 100% (QA)

To determine the minimum transfer price per unit of Component C that Division A can charge Division B we need to consider the opportunity cost for Div... View the full answer