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A company making a single product has manufacturing and distribution divisions. Stocks of finished goods are not held, all production being to order. The average net revenue per unit, allowing for quantity discounts, is sh. 100-0.01Q where Q is the quantity sold. The average variable costs per unit for the two divisions are:- Manufacturing = sh. 10+0.015Q Distribution = sh. 2+0.001Q The fixed costs per annum are:- Manufacturing sh. 40,000 Distribution sh. 20,000 Required: Calculate The optimum annual production quantity to maximize the profit of the company. (4marks) The profit of the company at the level of activity in (i) above (2 marks) The annual production quantity to maximize the manufacturing division’s profit, if it has been instructed to transfer the product to the distribution division at sh.73 per unit. (2 marks) The profit of the company showing the results of the two divisions at the level of activity in (iii) above. (2 marks
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