QUESTION 6 Tries remaining:1 Points out of 15.00 g question Transfer Prices at F

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QUESTION 6 Tries remaining:1 Points out of 15.00 g question Transfer Prices at Full Cost with Excess Capacity: Divisional Viewpoint Karakomi Cameras Inc. has a Disposables Division that produces a camera that sells for $13.00 per unit in the open market. The cost of the product is $9.50 (variable manufacturing of $5.00, plus fixed manufacturing of $4.50).Total fixed manufacturng costs are $315,000 at the normal annual production volume of 70,000 units. The Overseas Division has offered to buy 20,000 units at the full cost of $9.50. The Disposables Division has excess capacity, and the 20,000 units can be produced without interfering with the current outside sales of 70,000 units. The total fixed cost of the Disposables Division will not change. Explain whether the Disposables Division should accept or reject the offer. Show calculations. Compute net income at normal annual production volume. Do not use a negative sign with your answers. Karakomi Cameras, Inc. Disposables Division Unit Margins Current Sales Per Unit Total Sales 190,000 Variables costs Contribution margin Fixed costs Net income

Explanation / Answer

Calculate current operating income :

Compute net income with offer sales :

Per unit Total Sales 13 910000 Variable cost 5 350000 Contribution margin 8 560000 Fixed cost 4.5 315000 Net operating income 3.5 245000

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