Case Study Two: ActFast Ltd ActFast Ltd is a company that manufactures and sells a wide range of laptops to both domestic and international market. It has two divisions, i.e. Assembly Division and Battery Division. Battery Division sells batteries to both Assembly Division and to other laptop manufacturers. Assembly Division could also purchase batteries from other suppliers. The following data is available for both divisions: Assembly Division Selling price for each laptop, including battery $1,800 Costs per laptop: Battery from Battery Division $130 Other materials $450 Variable overheads $350 Annual production and sales of laptops 150,000 units Maximum annual external sales for laptops 180,000 units Battery Division Transfer price per battery sold to Assembly Division $130 Selling price per battery to external customers $140 Variable costs per battery (see Note*) $70 Current maximum production capacity 350,000 units Maximum potential external sales 220,000 units (Note *) Battery Division saves a variable overhead of $5 per battery if sold internally. Additional Information: 1. Assembly Division purchases various parts for the laptops from local suppliers. These parts are usually packed in sealed plastic bags and come in cartoon boxes. The plastic bags are disposed of as normal rubbish in the rubbish bins while cartoon boxes are sold to a nearby recycling company. 2. Battery Division uses a lot of chemical in manufacturing laptop batteries. Some of these chemicals are treated in its own waste treatment plant before disposal while others are sold to chemical recycling company. Apart from chemicals, Battery Division is also consuming high volume of electricity in its manufacturing processes. 3. Currently. ActFast's purchasing policy requires Assembly Division to purchase all the batteries needed from Battery Division at a price determined by the Head Office, which is $130. However, Battery Division has refused to sell to Assembly Division any quantity more than the current level of batteries it supplies to Assembly Division i.e. 150.000 units. This purchasing policy is not favorable to both managers as they cannot maximize their profit. The manager of Assembly Division has an external 4. In the company's recent board meeting, the board finally agrees to change the purchasing policy to allow both managers to negotiate their transfer price, provided it will optimize the profits of ActFast Ltd as a whole. In addition, the board also express concern over the increasing environmental footprint that the company is making and has asked the management accountant to study the possibility of implementing environmental management accounting (EMS). The company's current accounting information system only supplies, mainly, financial information for external reporting purpose. 5. The marketing director is planning to launch a new model of laptop, LS100, in six- month's time. It is near completion in its design stage. The purpose of LS100 is to compete with a close competitor. The selling price of the competing laptop is $2,500 and the marketing director believes the launching price of LS 100 could be in the range of $2,200 to $2,400. During the recent progress report, the laptop design engineers stated that the new laptop needs to incorporate some new features as this is necessary in order to stay ahead of competition. However, this would mean additional costs to be incurred Required: (a) Discuss how the existing purchasing policy restricts both managers in maximizing their net profit and how the new purchasing policy will change this. You need to support your discussion with the calculation of an acceptable transfer price range for both divisions under the new purchasing policy. (Note: 2 marks for calculation and 8 marks for discussion) (Max 400 words; 10 marks) (b) Discuss how ActFast Ltd can benefit from implementing an environmental management accounting You need to draw relevant examples from the case given. A minimum of TWO benefits are expected. (Max 250 words; 5 marks) (c) Explain how target costing could be used by ActFast Ltd on its LS100 model. You need to draw specifie examples from the case given (Max 250 words: 5 marks) (Total: 20 marks) Case Study Two: ActFast Ltd ActFast Ltd is a company that manufactures and sells a wide range of laptops to both domestic and international market. It has two divisions, i.e. Assembly Division and Battery Division. Battery Division sells batteries to both Assembly Division and to other laptop manufacturers. Assembly Division could also purchase batteries from other suppliers. The following data is available for both divisions: Assembly Division Selling price for each laptop, including battery $1,800 Costs per laptop: Battery from Battery Division $130 Other materials $450 Variable overheads $350 Annual production and sales of laptops 150,000 units Maximum annual external sales for laptops 180,000 units Battery Division Transfer price per battery sold to Assembly Division $130 Selling price per battery to external customers $140 Variable costs per battery (see Note*) $70 Current maximum production capacity 350,000 units Maximum potential external sales 220,000 units (Note *) Battery Division saves a variable overhead of $5 per battery if sold internally. Additional Information: 1. Assembly Division purchases various parts for the laptops from local suppliers. These parts are usually packed in sealed plastic bags and come in cartoon boxes. The plastic bags are disposed of as normal rubbish in the rubbish bins while cartoon boxes are sold to a nearby recycling company. 2. Battery Division uses a lot of chemical in manufacturing laptop batteries. Some of these chemicals are treated in its own waste treatment plant before disposal while others are sold to chemical recycling company. Apart from chemicals, Battery Division is also consuming high volume of electricity in its manufacturing processes. 3. Currently. ActFast's purchasing policy requires Assembly Division to purchase all the batteries needed from Battery Division at a price determined by the Head Office, which is $130. However, Battery Division has refused to sell to Assembly Division any quantity more than the current level of batteries it supplies to Assembly Division i.e. 150.000 units. This purchasing policy is not favorable to both managers as they cannot maximize their profit. The manager of Assembly Division has an external 4. In the company's recent board meeting, the board finally agrees to change the purchasing policy to allow both managers to negotiate their transfer price, provided it will optimize the profits of ActFast Ltd as a whole. In addition, the board also express concern over the increasing environmental footprint that the company is making and has asked the management accountant to study the possibility of implementing environmental management accounting (EMS). The company's current accounting information system only supplies, mainly, financial information for external reporting purpose. 5. The marketing director is planning to launch a new model of laptop, LS100, in six- month's time. It is near completion in its design stage. The purpose of LS100 is to compete with a close competitor. The selling price of the competing laptop is $2,500 and the marketing director believes the launching price of LS 100 could be in the range of $2,200 to $2,400. During the recent progress report, the laptop design engineers stated that the new laptop needs to incorporate some new features as this is necessary in order to stay ahead of competition. However, this would mean additional costs to be incurred Required: (a) Discuss how the existing purchasing policy restricts both managers in maximizing their net profit and how the new purchasing policy will change this. You need to support your discussion with the calculation of an acceptable transfer price range for both divisions under the new purchasing policy. (Note: 2 marks for calculation and 8 marks for discussion) (Max 400 words; 10 marks) (b) Discuss how ActFast Ltd can benefit from implementing an environmental management accounting You need to draw relevant examples from the case given. A minimum of TWO benefits are expected. (Max 250 words; 5 marks) (c) Explain how target costing could be used by ActFast Ltd on its LS100 model. You need to draw specifie examples from the case given (Max 250 words: 5 marks) (Total: 20 marks)