Q2. XYZ Ltd. has two processes-Preparing and Finishing. The normal output per week is 7,500 units (completed) at a capacity of 75%. XYZ Ltd. had production problems in preparing and require 2,000 units per week of prepared material for their finishing process. The existing cost structure of one prepared unit of XYZ Ltd. at the existing capacity is as follows. Material: Rs 2.00 (variable 100%) Labour: Rs 2.00 (variable 50%) Overheads: Rs 4.00 (variable 25%) The sale price of a completed unit of XYZ Ltd. is Rs 16 with a profit of Rs 4 per unit. Contrast the effect on the profits of XYZ Ltd. for 6 months (25 weeks) of supplying units to XYZ Ltd. with the following alternative transfer prices per unit. (0) Marginal Cost Marginal Cost + 25% Marginal cost + 15% return on capital employed. (Assume capital employed Rs 20 lakhs) (iv) Existing Cost (v) Existing Cost + a portion of profit on the basis of preparing cost / total cost x unit profit (vi) At an agreed market price of Rs 8.50. Assume no increase in the fixed costs