Management Accounting Question

Top Notch Stuff Limited is a manufacturing company which is divisionalised. One of its divisions, Assert, manufactures metal casings for gas heating boilers. Asserts budgeted profit statement for the year commencing 1 July 2013 is detailed below, and is based on sales of 100,000 units. The divisional investment from the parent company is pound 600,000, and is expected to achieve a return of 20%. Required: a) Calculate the division's expected ROI (return on investment) to two decimal places. b) Calculate the division's expected RI (residual income). c) Assert has the opportunity to manufacture and sell an additional 20,000 units at pound 15 each. Variable cost per unit would be same as that relating to the next year's budget. Fixed cost would increase by pound 10,000. Additional investment of pound 40,000 would be required. If Assert proceeded with this opportunity, by how much and what direction would the RI change? d) Assert may sell 20,000 units of its budgeted 100,000 units volume to Passive, another division within the same group. An external business has offered to supply the 20,000 units to Passive at a price of pound 14.40. If Assert does not match the external price, Passive will purchase from the external business. Assert will not save any fixed costs if that were to happen, although it would avoid 100% of the variable costs. 1. Explain, showing any relevant workings, the effect on the total profit of Top Notch Stuff Limited if Assert meets the external price when supplying Passive. II. Explain, showing any relevant workings, the effect on the total profit of Top Notch Stuff Limited if Assert does not meet the external price, and the contract goes to the external business, and no other external work will replace the work Assert foregoes. e) Specify SIX objectives of transfer pricing