ACC311: Strategic Management Accounting

There are two divisions at Success Ltd - the Standard division and the Deluxe division. The Standard division produces three products, S1, S2 and S3. These products are sold to overseas customers, as well as to the Deluxe division, at the same prices. The Deluxe division uses one unit of products S1,S2 and S3 to manufacture one unit of its own products D1, D2 and D3 respectively. Recently, the Deluxe division was forced to work below capacity because of difficulties in obtaining supplies of products S1, S2 and S3. Consequently, the Standard division has been instructed by senior management to sell all its manufactured products to the Deluxe division. The price and cost data are as follows: The Standard division has a maximum monthly capacity of 100,000 units. The processing constraints are such that production at capacity can only be maintained by producing at least 20,000 units of each product. The remaining capacity can be used to produce 40,000 units of any combination of the three products. I F D I F F The Deluxe division has the same capacity structure and constraints as the Standard division. The Deluxe division is able to sell all the products that it can produce at the final selling prices. Required: (a) From the Standard division's perspective, determine the product mix (type and quantity) the division will produce to maximise its divisional profit. (2 marks) (b) Based on your answer to (a), compute the total company profit if the Standard division is required to transfer all its products internally. (3 marks) (c) From the Deluxe division's perspective, determine the product mix (type and quantity) Deluxe will want to purchase from the Standard division to maximise Deluxe's divisional profit. In addition, compute the resulting total company profit. (6 marks) (d) Compute the product mix (type and quantity) which would maximise the total company profit, if the Standard division is required to transfer all its products internally. (6 marks)