Division A manufactures electronic circuit boards. The boards can be sold either

Question

Division A manufactures electronic circuit boards. The boards can be sold either to Division B of the same company or to outside customers. Last year, the following activity occurred in Division A: Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $220 in additional variable cost per instrument and then sold the instruments for $680 each. Prepare income statements for Division A. Division B. and the company as a whole. Assume that Division A's manufacturing capacity is 20.300 circuit boards. Next year. Division B wants to purchase 6.600 circuit boards from Division A rather than 5.600. (Circuit boards of this type are not available from outside sources.) What should Division A do from the standpoint of the company as a whole?

Explanation / Answer

Workings

2

as the Division B is having contrbution it is advised to sell 1000 units to division B

Division A Division B Total Company Sales 3836700 3808000 7644700 Added By Division 2598400 1232000 3830400 Transfer price paid 1058400 1058400 Total Expense 2598400 2290400 4888800 Contribution 1238300 1517600 2755900

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