QUESTION 3 (Total 15 marks) Lens Co manufactures lenses for use by a wide range of commercial customers. The company has two divisional manager who has overall responsibility for all aspect of running their division and the divisions the photographic division (P) and the optometry division (O). Each of the division is run by a divisions are currently treated as investment centres. Each manager, however, has an authorization limit of GHc 15,000 per item for capital expenditure and any item costing more than this must first be During the year, head office made a decision to sell a large amount of the equipment in division P and replace it one of Division O's factories in a country deemed to be politically unstable with the intention of opening a new factory approved by head office. elsewhere in the following year. Both divisions trade with overseas customers choosing to provide these customers with 60 days credit to encourage sales. Due to difference in exchange rates between the time of invoicing the customers and receiving the payment 60 days later, exchange gains and loses often occur. The cost of capital for Lens Co is 12% per annum. The following data relates to the year ended 30 November 20X6 Division P GHC 000 Division O GHC 000 Revenue 14,000 Gains on sale of equipment 18,800 400 14,400 18,800 Direct labour (2,400) (3,500) Direct material (4,800) (6,500) Divisional overheads (3,800) (5,200) Trading profit 3,400 3,600 Exchange gain/(loss) (200) 460 Exceptional costs for factory closure (1,800) Allocated head office costs (680) (1,040) Net divisional profit 2.520 1,220 Depreciation on uncontrollable assets Included in divisional overhead 320 460 Page 3 of 5