Companies A, B, C and D belong to a group that specialises in the manufacture of...

 

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Companies A, B, C and D belong to a group that specialises in the manufacture of mining equipment. Company A is planning the manufacture of the Supreme Underground Tunnel Digger, which besides digging tunnels for the mining industry, will also be used for tunnel digging in subways and roads. Company 'A' will need to purchase a part (P1) for the Digger, which can be supplied by the other group companies. Group policy however dictates that quotes outside the group are also obtained in order for the most advantageous option to be taken from a group point of view. The following quotes outside the group have been obtained: Precision Engineering has quoted a price of 45000€ for part (P1) to 'A' Hi-Tech Engineering has quoted a price of 50000€ for part (P1) to 'A'. In order for Hi-Tech to produce this part it will need to buy another part (P2) from company 'B'. 'B' has quoted a price of 20000€ for part (P2). 'B' in its turn in order to build (P2) will need to buy part (P3) from company 'C' at a price of 12000€. The quote inside the group is as follows: Company B can supply 'A' with part (P1] for 55000€. In order to build (P1), 'B' would still need to buy part (P3) at 12000€ from company 'C', and in addition 'B' would need to buy part (P4) from company D at a price of 36000€. Company 'D' in order to build (P4), would need to buy part (P5) from company 'C' at a price of 15000€. Additional information provided: Profit margins of the group companies are as follows: - Company 'B' adds a 25% mark up on own costs and has available capacity to accommodate the parts' building referred to above. - Company 'C' adds a 20% mark up on total costs and is operating at maximum capacity before being involved in the 'parts building referred to above. It is not viable for 'C' to increase its capacity. Company 'D' adds a 20% mark up on total costs and has available capacity to accommodate the 'parts' building referred to above. . Variable costs of the group companies are as follows: - Company 'B': 80% of own costs (excluding purchases from other group companies) - Company 'C': 25% of selling price - Company 'D': 70% of own costs (excluding purchases from other group companies) REQUIRED: From a group point of view, state which alternative should be adopted. (100%) Companies A, B, C and D belong to a group that specialises in the manufacture of mining equipment. Company A is planning the manufacture of the Supreme Underground Tunnel Digger, which besides digging tunnels for the mining industry, will also be used for tunnel digging in subways and roads. Company 'A' will need to purchase a part (P1) for the Digger, which can be supplied by the other group companies. Group policy however dictates that quotes outside the group are also obtained in order for the most advantageous option to be taken from a group point of view. The following quotes outside the group have been obtained: Precision Engineering has quoted a price of 45000€ for part (P1) to 'A' Hi-Tech Engineering has quoted a price of 50000€ for part (P1) to 'A'. In order for Hi-Tech to produce this part it will need to buy another part (P2) from company 'B'. 'B' has quoted a price of 20000€ for part (P2). 'B' in its turn in order to build (P2) will need to buy part (P3) from company 'C' at a price of 12000€. The quote inside the group is as follows: Company B can supply 'A' with part (P1] for 55000€. In order to build (P1), 'B' would still need to buy part (P3) at 12000€ from company 'C', and in addition 'B' would need to buy part (P4) from company D at a price of 36000€. Company 'D' in order to build (P4), would need to buy part (P5) from company 'C' at a price of 15000€. Additional information provided: Profit margins of the group companies are as follows: - Company 'B' adds a 25% mark up on own costs and has available capacity to accommodate the parts' building referred to above. - Company 'C' adds a 20% mark up on total costs and is operating at maximum capacity before being involved in the 'parts building referred to above. It is not viable for 'C' to increase its capacity. Company 'D' adds a 20% mark up on total costs and has available capacity to accommodate the 'parts' building referred to above. . Variable costs of the group companies are as follows: - Company 'B': 80% of own costs (excluding purchases from other group companies) - Company 'C': 25% of selling price - Company 'D': 70% of own costs (excluding purchases from other group companies) REQUIRED: From a group point of view, state which alternative should be adopted. (100%)

Answer rating: 100% (QA)

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