Hi :)
Companies RP, RR, RS and RT are members of a group, RP wishes to buy an electronic control system for its factory and, in accordance with group policy, must obtain quotations from companies inside and outside of the group.
From outside of the group the following quotations are received:
a) Company A quoted $33,200
b) Company B quoted $35,000 but would buy a special unit from RS for $13000. To make this unit, however, RS would need to buy parts from IIk at a price of $7500.
The inside quotation was from RS whose price was $48000. This would require RS buying parts from RR at a price of $8000 and units from RT at a price of $30,000. However , RT would need to buy parts from RR at a price of $11,000.
Additional data is:
1- RR is extremely busy with work outside the group and has quoted current market prices for all of its products
2- RS costs for the RP contract, including purchases from RR and RT , total $42,000. For the company B contract it expects a profit of 25% on the cost of its own work
3- RT prices provide for a 20% profit margin on total costs
4- The variable costs of the group companies in respect of the work under consideration are:
RR: 20% of selling price
RS: 70% of own cost (excluding purchases from from other group companies)
RT: 65% of own cost (excluding purchases from other group companies).
Required: which contract to be accepted.
In the sloution, the part I don't get is how they calculated relevant cost of RS and RT:
Buy from external company B:[/b]
Relevant cost of RT:
(125% * own costs) + 7500 = 13000
therefore own costs = 5500/1.25 = 4400
Buy from RS:
Relevant cost of RT:
Total cost = $30,000 (20% margin on cost) = $25000
Less: transferred cost from RR (11000)
own cost = 14000
variable cost to group = 14000* 65% = (9100)
Relevant cost of RS: 42000 - ( 30,000 + 8000) = 2800
Could you please explain how they calculated own cost of RS?
Thanks in advance.
Companies RP, RR, RS and RT are members of a group, RP wishes to buy an electronic control system for its factory and, in accordance with group policy, must obtain quotations from companies inside and outside of the group.
From outside of the group the following quotations are received:
a) Company A quoted $33,200
b) Company B quoted $35,000 but would buy a special unit from RS for $13000. To make this unit, however, RS would need to buy parts from IIk at a price of $7500.
The inside quotation was from RS whose price was $48000. This would require RS buying parts from RR at a price of $8000 and units from RT at a price of $30,000. However , RT would need to buy parts from RR at a price of $11,000.
Additional data is:
1- RR is extremely busy with work outside the group and has quoted current market prices for all of its products
2- RS costs for the RP contract, including purchases from RR and RT , total $42,000. For the company B contract it expects a profit of 25% on the cost of its own work
3- RT prices provide for a 20% profit margin on total costs
4- The variable costs of the group companies in respect of the work under consideration are:
RR: 20% of selling price
RS: 70% of own cost (excluding purchases from from other group companies)
RT: 65% of own cost (excluding purchases from other group companies).
Required: which contract to be accepted.
In the sloution, the part I don't get is how they calculated relevant cost of RS and RT:
Buy from external company B:[/b]
Relevant cost of RT:
(125% * own costs) + 7500 = 13000
therefore own costs = 5500/1.25 = 4400
Buy from RS:
Relevant cost of RT:
Total cost = $30,000 (20% margin on cost) = $25000
Less: transferred cost from RR (11000)
own cost = 14000
variable cost to group = 14000* 65% = (9100)
Relevant cost of RS: 42000 - ( 30,000 + 8000) = 2800
Could you please explain how they calculated own cost of RS?
Thanks in advance.