tpa plc operates two subsidiaries, X and Y. X is a component manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of Product W produced. Subsidiary X transfers to Subsidiary Y all of the components needed to produce Product W. Subsidiary X also sells components on the external market. The following bud geted information is available for each subsidiary:

X Y
Market price per component	$800
Market price per unit of W	$1 200
Production costs per component	$600
Assembly costs per unit of W	$400
Non production fixed costs	$1.5m	$1.3m
External demand	10 000 units	12 000 units
Capacity	22 000 units
Taxation rates	25%	30%

The production cost per component is 60% variable. The fixed production costs are absorbed based on budgeted output. X sets a transfer price at marginal cost plus 70%.

Required:

Calculate the post tax profit generated by each subsidiary.

Answer rating: 100% (QA)

Y Sales 10000 x 800 12000 x 612 12000 x 1200 Costs 8... View the full answer