Would you recommend sales to d-2

Reference no: EM133500795

Case: Plato Co. ltd has two divisions -D1 and @-D. Division D1 operates at 100% capacity level has been required by the company management to supply its product to Division D-2 which is at present operational at 60% capacity. Division D-2 needs the productproduced by division D-1 for supplementing its main product and is willing to pay Shs. 200 per unit against Shs. 300 per unit which D-1 can charge to external customers. D-1 's full cost per unit is Shs. 200 whereas its variable cost is shs 170 per unit. D-2's cost per unit after purchase from D-1 is Shs 2000 with the following beak up:

Parts purchased from outside vendor	900
Parts purchased from D-1	200
Other variable cost	400
Fixed cost (per unit)	400
D-2 can fix selling price per unit full cost plus 10%

Required:

You are the manager of division D-1. Would you recommend sales to D-2? Use computation to justify your decision.

Reference no: EM133500795

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