Question 3 GAC Motors is a divisionalzed firm with a transfer policy in place. The Aerodynamic Division manufactures a component required by the Motor Assembly Division for which there is currently no external market. One unit of the component is required for every final output. The Motor Assembly Division's projected selling price and output ore as follows: Net selling price (N) Quantity sold (Units) 1500 2000 1300 3.000 1200 4.000 950 5.000 The costs of each division ore as follows: Aerodynamic (M) Motor Assembly (8) Variable cost per uni! 220 140 Fixed costs attributable to the product 1.200.000 1.800.000 The transfer price for the intermediate product is 700 on cost-plus mark-up basis. Required: aj show the profit computations for the divisions and the company as a whole. What is the optimal decision for the firm b) Suppose that an external market can be found but will result in additional fixed costs of 500.000 and additional variable costs of 40/unit with an external sales price of NP00 per unit. How will this affect the decision of the Aerodynamic Division manager 130 points) Formulae 1. 100 s price ised cats a Sales value 2. 3. 5. fed costs contro feed cases e sales price/unit con facts Top con fed carpet profit contribution/ ficarea profit sales price/unit conto 6. 7. Question 3 GAC Motors is a divisionalized firm with a transfer policy in place. The Aerodynamic Division manufactures a component required by the Motor Assembly Division for which there is currently no external market. One unit of the component is required for every final output. The Motor Assembly Division's projected selling price and output are as follows: Net selling price (0) Quantity sold (Units) 1500 2.000 1300 3.000 1200 4,000 950 5,000 The costs of each division are as follows: Aerodynamic (1) Motor Assembly (M) Variable cost per unit 220 140 Fixed costs attributable to the product 1.200,000 1.800,000 The transfer price for the intermediate product is 44700 on cost-plus mark-up basis. Required: a) Show the profit computations for the divisions and the company as a whole. What is the optimal decision for the firm? b) Suppose that an external market can be found but will result in additional fixed costs of 4500.000 and additional variable costs of +40/unit with an external sales price of W900 per unit. How will this affect the decision of the Aerodynamic Division manager (30 points) Formulae 1. x 100 2. 3. 4 4. 11 contribution/uni sales price/unit Fixed costs x Sale value contribution Fixed costs contribution/unit Fixed costs contribution/unit fixed costs Tartu contribution/unit Fixed coststTarget profit contribution/ fined coststaract pro contribution/unit x sales price/unit . 5. = 6. 6. 7. x sales price/unit