Accounting Essay Example | Topics and Well Written Essays - 500 words - 18

Accounting - Essay Example In order to consider this option, Reading therefore may need to assess as to whether the overall revenue and profitability of the division will increase if this transaction is carried out. The key influence of this on the attitude of Reading on intra-company business will therefore be reshaped by the way its profitability as well as the revenue is increased besides registering a substantial increase in the overall capacity. Another important aspect of this whole transaction may be based on the assumption that during the intra-company business, Reading may not have to incur any selling expenses therefore this may result into substantial savings for it in terms of cost reduction. If Reading adapts the second option of charging the standard full manufacturing cost plus 15%, as proposed by the Finance Manager, the overall loss will be approximately $1.68 per unit. The calculations are as under: The above option therefore suggest that adapting the option of standard manufacturing cost plus mark-up can certainly reduce the overall per unit loss when compared with the market price of the component. This option clearly reduces the loss per unit for Reading (if compared with the market price of the component) therefore adapting such option may offer more leverage to Reading in terms of its ability to further increase its profitability while at the same time reducing the costs. If this option is carried out, Reading will further be able to sell its variable selling expenses therefore this cost reduction may further allow to become more profitable. It is also important to note that the overall selling price of the component, as offered by Reading, is $13.00 therefore if compared with the original market selling price, the per unit loss will be $2.88. This will however, be lower than the loss which could be incurred under first option. Considering above, the suggestions proposed by the Finance Manager therefore may significantly increase the overall profitability