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Can someone solve all the points for me? Question 3: The head office of Multifaceted, plc, a conglomerate, is currently trying to arbitrate a dispute
Can someone solve all the points for me?
Question 3: The head office of Multifaceted, plc, a conglomerate, is currently trying to arbitrate a dispute about whether to increase volume or not between division S and Division C. Division S supplies a key component which is incorporated into the final product which is assembled and sold to outside customers by Division C. The current transfer price of the component is 14 per unit of component, each unit of finished product contains one unit of the component and the current sales volume is 8,000 units. Division C has identified two potential new customers and is considering whether to increase sales to one of two increased levels, in line with the two proposals below. The following information regarding the current sales level and the two proposals is summarised in the following table: Current 8,000 50 Proposal 1 12,000 Proposal 2 16,000 34 42 Volume Price Cost per unit: Division S Division C 15 The cost per unit (CPU) for both divisions indicated for the two proposals is the CPU for the additional units, and the CPU of the current 8,000 units will be unaffected irrespective of the decision made. Required: a) Identify the volume that maximises the profit for: a. Division S b. Division C, and c. Multifaceted Ltd (4 marks each) b) Identify and discuss the different methods to set the transfer price that Multifaceted, Ltd could use in trying to set the dispute between the two divisions. (7 marks) c) Make a recommendation to the management of Multifaceted Ltd. about how transfer price could be set in order to ensure the best course of action for both divisions is the same as for Multifaceted, Ltd. as a whole. (6 marks) (Total marks: 25)Step by Step Solution
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