Division a Produces a Component for Holden Ltd's Main Product

question 3

Multiple Choice

Division A produces a component for Holden Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: $\begin{array}{ll}\text { Direct material } & \$ 30 \text { per unit } \\\text { Direct labour } & \$ 25 \text { per unit } \\\text { Variable overhead } & \$ 10 \text { per unit } \\\text { Fixed overhead (based on a capacity of } & \$ 6 \text { per unit } \\5,000 \text { units) } &\end{array}$
The minimum price at which A would sell components internally is:

• A) $73
• B) $75
• C) $71
• D) $65

Understand the application and effects of zero-based budgeting on organizational financial planning.

Identify and explain the processes of asset valuation and depreciation.

Distinguish between types of donations and their purposes and management within nonprofit organizations.

Develop skills in financial analysis through understanding and applying financial ratios.

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Definitions:

Opportunity Cost

The expense incurred from not choosing the second-best option available during decision-making.

Marginal Cost

The swell in aggregate expenditure due to the production of an additional unit of a product or service.

Environment Pollution

The contamination of the natural environment by harmful substances or activities, leading to adverse effects on ecosystems and human health.

Ethanol Subsidies

Financial incentives provided by governments to support the production, use, and development of ethanol as a form of renewable energy.