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The following question is from BPP :
Ques – Division X and Division Y are profit centres in the same company. Division X makes a single component
product. It has a fixed contract to supply an external customer with 5,000 units each month at a price of $35
per unit. All other sales are to Division Y at $30 per unit. Budgeted monthly profits for Division X are as
follows:My question – The question clearly mentioned 5000 units are sold externally at 35 per unit then why in the answers it is mentioned that 10k units are external and 5k internal .
Thanks in advance !
I only have the current edition of the BPP Revision Kit and I cannot find anywhere in it the question as you have typed it.
Without seeing the question and answer I cannot explain.Sir below is the question:
Division X and Division Y are profit centres in the same company. Division X makes a single component
product. It has a fixed contract to supply an external customer with 5,000 units each month at a price of $35
per unit. All other sales are to Division Y at $30 per unit. Budgeted monthly profits for Division X are as
follows:
$
Sales: External 350,000
Sales to Division Y 150,000
500,000
Variable costs (270,000)
Fixed costs (170,000
Profit 60,000
An external supplier offers to sell 4,000 units of the component to Division Y at a price of $25 per unit, for
one month only. Division X would not be able to sell additional components externally.Again, this question is not in the current edition of the BPP Revision Kit and so I cannot check that you have copied the wording correctly and I cannot see what the question actually asked for.
The question as you have typed it does not say that they only sell 5,000 externally. They have a fixed contract to sell 5,000 to one customer, but that does not mean that they do not sell more to others – they obviously sell more to others as you can see from the external revenue figure!!
It is also clear from the revenue from division Y in the question that they are currently selling 5,000 units to division Y.
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