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Division A of Better Margins Ltd. has been given a budgeted target of selling 2,00,000...

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Accounting

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Division A of Better Margins Ltd. has been given a budgeted target of selling 2,00,000 components COM 21, it manufactures at a price which would fetch a return of 25% on the average assets employed by it. The following figures are relevant: However, the marketing department of the company finds out by a survey that the maximum number of COM 21, the market can take, at the proposed price is only 1,40,000 units. Fortunately Division B is willing to purchase the balance 60,000 units. The Manager, Division A is willing to sell to Division B at a concessional price of Rs. 4 per unit. But the Manager, Division B is ready to pay Rs. 2.25 only per unit, as he feels he can himself make COM 21 in his Division at that price. Rather than sell to Division B at Rs. 2.25, the Manager, Division A feels he will restrict the activity of his Division to the manufacture and sale of 1,40,000 components only. By this, he could reduce Rs. 80,000 in stocks, Rs. 1,20,000 of plant and other assets and Rs. 40,000 in selling and administration expenses. As a Cost Accountant, you are asked to work out the various computations and show that selling 60,000 COM 21 to Division B at Rs. 2.25 per unit would be in the interest of the organisation

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