QUESTION FOUR [20] TT and UU are two divisions at the W Group. The TT division manufactures batteries which it sells to other divisions and external customers, The UU division has designed a new product with the name of product B and has asked TT division to supply them with the battery component. Each unit of product B will require one battery component. This battery component will not be sold by TT to external customers. TT division has quoted a transfer price of R585 for each battery. It is the policy of W Group to reward managers based on their divisional returns on capital employed. Details of the monthly production for each division are as follows: Page 6 of 8 TT division Output Variable cost Fixed costs Battery components will be produced in batches of 1000 units. R195 per battery R60 000 (these are incurred to produce the battery component) UU division Output Product B will be produced in batches of 1000 units The maximum customer demand is 6000 units. R117 per unit plus the cost of the Battery component. R75 000 (there are incurred specifically to produce Product B) Variable costs Fixed costs The relationship between monthly customer demand and the selling price of product B is shown below: Demand 1000 units selling price per unit R1 560 2000 units R1 430 3000 units 4000 units R1 300 R1 170 5000 units R1 040 6000 units R871 Required: 4.1. Calculate, based on the transfer price of R585 per battery component, the monthly profit that would be earned because of selling product B by: a) UU division b) TT division c) W Group (10) Calculate the maximum monthly profit from the sale of product B for the W Group. (4) 4.2 4.3. Calculate, using the marginal cost of the battery component as the transfer price, the monthly profit that would be earned because of selling product B by: a) UU division b) TT division c) W Group (6) QUESTION FOUR [20] TT and UU are two divisions at the W Group. The TT division manufactures batteries which it sells to other divisions and external customers, The UU division has designed a new product with the name of product B and has asked TT division to supply them with the battery component. Each unit of product B will require one battery component. This battery component will not be sold by TT to external customers. TT division has quoted a transfer price of R585 for each battery. It is the policy of W Group to reward managers based on their divisional returns on capital employed. Details of the monthly production for each division are as follows: Page 6 of 8 TT division Output Variable cost Fixed costs Battery components will be produced in batches of 1000 units. R195 per battery R60 000 (these are incurred to produce the battery component) UU division Output Product B will be produced in batches of 1000 units The maximum customer demand is 6000 units. R117 per unit plus the cost of the Battery component. R75 000 (there are incurred specifically to produce Product B) Variable costs Fixed costs The relationship between monthly customer demand and the selling price of product B is shown below: Demand 1000 units selling price per unit R1 560 2000 units R1 430 3000 units 4000 units R1 300 R1 170 5000 units R1 040 6000 units R871 Required: 4.1. Calculate, based on the transfer price of R585 per battery component, the monthly profit that would be earned because of selling product B by: a) UU division b) TT division c) W Group (10) Calculate the maximum monthly profit from the sale of product B for the W Group. (4) 4.2 4.3. Calculate, using the marginal cost of the battery component as the transfer price, the monthly profit that would be earned because of selling product B by: a) UU division b) TT division c) W Group (6)
