The Z division of MCX Ltd. Produces a component which it sells externally and can also be transferred to division X. Division Z has set a performance target for the coming financial year of residual income of 7 50,00,000. The following budgeted information relating to Z division has been prepared for the coming financial year: Maximum production / sales capacity is 8,00,000 units. • Sales to external customers 5,00,000 units at 7 37 per unit. Variable cost per component is 25. Fixed cost directly attributable to the division is 7 14,00,000. • Capital employed in the division is 2,00,00,000 with cost of capital of 13%. The X division of MCX Ltd. has asked Z division to quote a transfer price for 3,00,000 units of the component. Calculate the transfer price for the component which Z division should quote to X division so that its residual in come target is achieved.

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.