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Produce the profit statement for each division showing sales

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Question - CD is a produceer of soft drinks. The company has two divisions: Division C and D. Division C manufactures metal cans that are sold to division D and also to external customers. Division D produces soft drinks and sells them to external customers in a cans that it obtains fro division C,

DIVISION C ANNUAL BUDGET INFORMATION

Market selling price per 1 000 cans N$ 130

Variable cost per can N$ 0.04

Fixed costs N$ 2.4 million

Production capacity 40 million cans

External demand for cans 38 million cans

Demand for division D 20 million cans

DIVISION D ANNUAL BUDGET INFORMATION

Selling price per canned soft drink N$ 0.50

Other variable costs per canned soft drink (excluding the can) N$ 0.15

Cost of a can (from division C) At transfer price

Fixed cost N$ 1 750 000

Transfer pricing policy:

Division C is required to satisfy the demand of division D before selling cans externally. The transfer price for a can is full cost-plus 20%.

Required -

a) Produce the profit statement for each division showing sales, costs and the overall total profit of CD. (Show external sales and inter-divisional transfer separately where appropriate).

b) Suppose division D supplies the external market with 20 million cans and divisions' demand has grown to the total production capacity of division C from the current 20 million cans. Division C external selling price is N$ 150 per 1,000 cans. Calculate the minimum transfer price to division D.

Reference no: EM133186610

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