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Calculate the number of units that gives nile

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Reference no: EM133150026

Question - Nile and Amazon are divisions of River plc. Nile produces an intermediate product that is transferred to Amazon at a transfer price of £20 that is based on full cost plus a mark-up.

Demand for the final product is 1,000 units at £80 with demand rising by 1,000 units for every £10 reduction in price. The maximum output of Nile is 6,000 units and there is no other supplier of the intermediate product.

Variable costs for Nile are £9 per unit and £5 per unit for Amazon. Fixed costs are £40,000 per annum for Nile and £60,000 for Amazon.

Calculate the number of units that gives Nile, Amazon and River plc the greatest profit respectively and discuss your computation.

Reference no: EM133150026

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