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Pls fast Problem 13.17 (Inter Division Transfers Vs outside suppliers-Alternative use of production facilities). A company is organised into two large divisions. Division A produces
Pls fast
Problem 13.17 (Inter Division Transfers Vs outside suppliers-Alternative use of production facilities). A company is organised into two large divisions. Division A produces a component which is used by division B in making a final product. The final product is sold Rs. 400 each. Division A has a capacity to produces 2,000 units and the entire quantity can be purchased by division B. Division A informed that due to installation of new machines, its depreciation cost had gone up and hence wanted to increase the price of the component to be supplied to Division B to Rs. 220. Division B, however, can buy the component from the outside market at Rs. 220 each. The variable costs of Division A is Rs. 190 and fixed costs Rs. 20 per component. The variable costs of Divisions B in manufacturing the final product by using the component is Rs. 150 (excluding the component cost). Present statement indicating the position of each Division and the company as a whole taking each of the following situations separately: (i) If there are no alternative uses for the production facilities ofA, will the company benefit if Division B buys from outside suppliers at Rs. 200 per component? (ii) If internal facilities of A are not otherwise idle and the alternative use of the facilities will give an annual cash operating saving Rs. 30,000 to Division A, should Division B purchase the component from outside suppliers? (iii) If there are no alternative uses for the production facilities of Division A and the selling price for the component in the outside market drops by Rs. 15, should Division B purchase from outside suppliers? (iv) What transfer price would you fix for the component in each of the above three circumstancesStep by Step Solution
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