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Dear sir ,
could you explain material calculation dec 2011 question 2 bath co questionDivision A
Current selling price for each bath $450
Costs per bath:
Fittings from Division B $75
Other materials from external suppliers $200
Annual production and sales of baths (units) 80,000
Maximum annual market demand for baths (units) 80,000Division B
Current external selling price per set of fittings $80
Current price for sales to Division A $75
Costs per set of fittings:
Materials $5
Maximum annual production and sales of sets of fittings (units) 200,000
(including internal and external sales)
Maximum annual external demand for sets of fittings (units) 180,000
Maximum annual internal demand for sets of fittings (units) 80,000, although the new manager of Division A believes that he could obtain fittings of the same
quality and appearance for $65 per set,division A buy 60000 externally and 20000 from Div B
what price to take w3 and what is the internalsales w2
other maternal from external supplier $200 is it means buying cost from outside?W(2) Internal sales/inter-divisional transfers
20,000 x $65 = $1,300
W(3) Material costs
Div A: 60,000 x $265 + (20,000 x $200) = $19,900 explain?thanks in advance sir
Division B can only produce 200,000 and they should sell 180,000 externally and the other 20,000 to Division A.
Since A can buy from externally for $65, that should be the price that B charges A for the fittings they supply.
A wants to produce 80,000, so for 20,000 they will buy from B at $65 (total 1,300 for internal transfers – all the totals are in ‘000’s as the answer states).
The other 60,000 they will buy externally at $65.
In addition they need to buy other materials from outside for all 80,000 units.
So they will be paying to outside suppliers (60,000 x $65) + (80,000 x $200) = 19,900 (as per the answer)
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