tpa plc operates two subsidiaries, X and Y. X is a component manufacturing subsidiary and Y is an assembly and final product subsidiary. Both subsidiaries produce one type of output only. Subsidiary Y needs one component from subsidiary X for every unit of Product W produced. Subsidiary X transfers to Subsidiary Y all of the components needed to produce Product W. Subsidiary X also sells components on the external market. The following bud geted information is available for each subsidiary:
|
X Y |
||
|
Market price per component |
$800 |
|
|
Market price per unit of W |
$1 200 |
|
|
Production costs per component |
$600 |
|
|
Assembly costs per unit of W |
$400 |
|
|
Non production fixed costs |
$1.5m |
$1.3m |
|
External demand |
10 000 units |
12 000 units |
|
Capacity |
22 000 units |
|
|
Taxation rates |
25% |
30% |
The production cost per component is 60% variable. The fixed production costs are absorbed based on budgeted output. X sets a transfer price at marginal cost plus 70%.
Required:
Calculate the post tax profit generated by each subsidiary.
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