Seprod plc is a manufacturing company where one product Detergent is produced with two major product divisions: Division X and Division Y. The Detergent is produced in Division X, and then transferred to Division Y and also sells externally. AXE Ltd approached Division Y with an offer to supply it with 2500 boxes of Detergent at $25 each. The following details are available for Division X: $ Sales revenue Sales revenue to Division Y @$40 per box 400,000 External sales @$45 per box 270,000 Less: Variable costs @$22 per box (352,000) Fixed Costs (100,000) Profit 218,000 If Division Y decides to buy from AXE Ltd, assuming external sales of Divsion X cannot be increased, what is the impact of the decision on the profits Division X and Seprod plc as a whole?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 26P

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Seprod plc is a manufacturing company where one product Detergent is produced with two major product divisions: Division X and Division Y. The Detergent is produced in Division X, and then transferred to Division Y and also sells externally. AXE Ltd approached Division Y with an offer to supply it with 2500 boxes of Detergent at $25 each. The following details are available for Division X:

Sales revenue

Sales revenue to Division Y @$40 per box 400,000

External sales @$45 per box 270,000

Less: Variable costs @$22 per box (352,000)

Fixed Costs (100,000)

Profit 218,000

If Division Y decides to buy from AXE Ltd, assuming external sales of Divsion X cannot be increased, what is the impact of the decision on the profits Division X and Seprod plc as a whole?

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