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ZP Plc operates two subsidiaries X and Y X is a component manufacturing subsidiary and Y is an assembly and final product subsidiary Both subsidiaries produce one type of output only Subsidiary

ZP Plc operates two subsidiaries, X and Y. X is a component manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of Product W produced. Subsidiary X transfers to Subsidiary Y all of the components needed to produce Product W. Subsidiary X also sells components on the external market. The following bud- geted information is available for each subsidiary:

 

Y

 

 

Market price per component

$800

Market price per unit of W

$1 200

Production costs per component

$600

Assembly costs per unit of W

$400

Non production fixed costs

$1.5m

$1.3m

External demand

10 000 units

12 000 units

Capacity

22 000 units

 

Taxation rates

25%

30%

 

The production cost per component is 60% variable. The fixed production costs are absorbed based on budgeted output. X sets a transfer price at marginal cost plus 70%.

 

Required

1 Calculate the post tax profit generated by each subsidiary.

Jun 24 2020 View more View Less

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