Question
ABC, Inc. has a number of divisions. One division, Khreishan, makes a component, component X, that is used in the manufacture of DVD players. Another
ABC, Inc. has a number of divisions. One division, Khreishan, makes a component, component X, that is used in the manufacture of DVD players. Another division, Marshan, makes DVD players that use component X and needs 60,000 units of component X per year. Khreishan incurs the following costs for one unit of component X:
Direct materials P0.30
Direct labor 0.15
Variable overhead 0.70
Fixed overhead 1.00
Total P2.15
Khreishan has capacity to make 400,000 units of component X per year, but due to a soft market, only plans to produce and sell 320,000 units next year. Marshan currently buys component X from an outside supplier for P2.50 each (the same price that Khreshan receives). Assume that Khreishan and Marshan have agreed on a transfer price of P2.20. What is the total benefit for ABC, Inc.?
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