Medical Group manufactures innovative range of products, which is used for the replacement of various injured parts
Question:
Medical Group manufactures innovative range of products, which is used for the replacement of various injured parts of the body. The company is using divisionaized structure. The objective of each division is to maximise divisional profits as well as the companies profit.
Company has two divisions Division A and Division B. Division A manufacture Joint support appliances. Division B purchases products from different sources including Division A, packs them and sells them to retailers.
The following information is available about both the divisions.
Division A
Production’s cost: | OMR |
Direct materials per unit | 30 |
Direct labour | 35 |
Variable overhead per unit | 25 |
Division fixed cost | 50,000 |
Division B
Packing & Retail costs: | OMR |
Direct materials | 10 |
Direct labour per unit | 5 |
Variable overhead per unit | 5 |
Division fixed cost | 30,000 |
Notes: Fixed costs shown above are for 5,000 units.
Required:
- What is the transfer price if Diviaion A sells product to Division B at Marginal cost +30%.
- Division B has purchased 5,000 units from division A and sold to outside market for OMR 125. what is the annual profit of Division A and division B?
- Evaluate the profit of both the divisions and comment if it is a sensible trasnsfer price to achieve goal congruence.
Expert Answer:
1 Marginal cost is the cost that increases with each increase in unit So it is the variable cost Di... View the full answer
