AF3112 - MANAGEMENT ACCOUNTING 2 GROUP PRESENTATION QUESTION [Lecture 10! Required: 0n the basis that all Give Division's production must be sold exclusively to Take Division, do the following. 1) As general manager of Give Division: a. State what proportion pattern you would adopt in your sales to Take Division,- b. Calculate what profit per annum would be earned from those sales. 2) As general manager ofTake Division: a. State what quantities of products, Theta, Sigma and Omega, you would produce; b. Calculate what profit per annum would be earned from your sales. 3) As group planning executives: a. State what production pattern you would recommend to maximize group prot; b. Calculate what prot per annum would be earned from that pattern. Give Division is an important supplier to Take Division in a group in which divisions are operated as autonomous profit centres. The group has established the f allowing rules for calculating transfer prices. (a) If the product is being sold to customers outside the group, the average price for the past six months is to be used as the transfer price. (b) If the product is not sold to outside customers, the transfer price to be used is the standard variable cost plus fixed overhead at minimum budgeted volume plus a 10% prof it margin on cost. The following data are available regarding each division. Give Division This division produces three products, A, B and C whose variable costs per unit and apportioned fixed costs per annum are as follows. A B C a - 18 Variable manufacturing cost, per unit 6 13 Fixed cost, per annum 75,000 105,000 130,000 . The direct labour hour content of each of these three products is three direct labouchfgs unit. but the materials used are different. The production capacity of the factory IS ed direct labOur hours and it is a requirement that at least 45,000 direct labour hours be I; - each product. The remaining capacity can be used for any combination of three Dr The division has been selling 40% of its output of product A to customers outside tings-2:: _ the average price over the past six months has been 13 per umt. Product A has a to Take Division as has all Give Division's output of products B and C. Take Division This division has three products: Theta. Sigma and Omega which use products A, B and C from Give Division as follows. Take Division's product Number of Give Division's products used A B C 1 unit of Theta use: 5 5 - 1 unit of Sigma uses 3 5 2 1 unit of Omega uses 2 8 The unit selling prices of this division's products, their other unit variable costs (ie excluding those from Give Division) and apportioned fixed costs per amount are as follows. Theta. Sigma Omega )9 Selling price. per unit 280 295 340 Other variable costs, per unit 30 25 45 Fixed cost, per annum 60,000 90,000 120,000 Take Division has no difficulty in making sales at the above prices and it must sell at least 1,500 per annum of each product. However, because product A is being sold by Give Division to customers outside the group, Take Division has complained that they are operating considerably below capacity. The group planning executive has therefore intervened and instructed Give Division to stop selling outside the group