Problem 13.3 (a) What is meant by Incremental Revenue ? (b) (Transfer pricing). A Company has two Divisions, Division 'A' and Division 'B'. Division has a Budget of selling 2,00,000 nos. of a particular component 'x' to fetch a return of 20% on the average assets employed. The following particulars of Division A are also known : Fixed Overhead Rs. 5 lakhs Variable Cost Re. I per unit Average Assets Sundry Debtors Rs. 2 lakhs Inventories Rs. 5 lakhs Plant and Equipments Rs. 5 lakhs However, there is constraint in marketing and only 1,50,000 units of the component 'x' can be directly sold to the market at the proposed price. It has been gathered that the balance 50,000 units of component *x' can be taken up by Division B Division A wants a price of Rs. 4 per unit of 'x' but Division 'B' is prepared to pay Rs. 2 per unit of 'x. Division A has another option on hand, which is to produce only 1,50,000 units of component x. This will reduce the holding of assets by Rs. 2 lakhs and fixed overhead by Rs. 25,000 You are required to advise the most profitable course of action for Division A