Accounting

Problem 13.20 (Buying from group companies or from outside) Companies GP, GR, GS and GI are members of a group. GP wishes to buy an electronic control system for its factory and in accordance with group policy, must obtain quotations from companies inside and outside the group. From outside of the group the following quotations are received: Company A quoted Rs. 33,200. Company B quoted Rs. 35,000 but would buy a special unit from GS for Rs. 13,000. To make this unit, however, GS would need to buy parts from GR at a price of Rs. 7,500. The inside quotation was from GS whose price was Rs. 48,000. This would require GS buying parts from GR at a price of Rs. 8,000 and units from GT at a price of Rs. 30,000. However, GT would need to buy parts from GR at a price of Rs. 11,000. Additional data are as follows: GR is extremely busy with work outside the group and has quoted current market prices for all its products. GS costs of the GP contracts, including purchases from GR and GT total Rs. 42,000. For the company B contract it expects a profit of 25% on the cost of its own work. GT prices provide for a 20% profit margin on total costs. The variable costs of the group companies in respect of the work under consideration are: GR 20% of selling price. GS 70% of own cost (excluding purchases from other group companies). GT 65% of own cost (excluding purchases from other group companies). You are required. from group point view to recommend with appropriate calculations, whether the contract should be placed with GS or Company A or company B. T