XYZ Company manufactures pillows. The Cover Division makes covers and the Assembly Division makes the finished pillows. The covers can be sold separately for P4.00. The pillows sell for P6.00. The information related to manufacturing for the most recent year is as follows: Cover Division Assembly Division Manufacturing costs of division P6,000,000 (60% variable) P1,500,000 (50% variable) Sales to external parties P4,000,000 P7,200,000 Market value of covers transferred from the Cover Division to the Assembly Division P6,000,000 Required: a. Assuming the manager of the pillows division received an offer from an outside supplier for P5,000,000 for all the covers it needs. The covers division cannot increase its sales to outside parties. What will happen to the profit of the company as a whole if the Pillows division accepts the supplier's offer?
XYZ Company manufactures pillows. The Cover Division makes covers and the Assembly Division makes the finished pillows. The covers can be sold separately for P4.00. The pillows sell for P6.00. The information related to manufacturing for the most recent year is as follows:
|
|
Cover Division |
Assembly Division |
|
|
|
P6,000,000 (60% variable) |
P1,500,000 (50% variable) |
|
|
Sales to external parties |
P4,000,000 |
P7,200,000 |
|
|
Market value of covers transferred from the Cover Division to the Assembly Division |
|
|
P6,000,000 |
Required:
a. Assuming the manager of the pillows division received an offer from an outside supplier for P5,000,000 for all the covers it needs. The covers division cannot increase its sales to outside parties. What will happen to the profit of the company as a whole if the Pillows division accepts the supplier's offer?
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