The materials used by the Winston-Salem Division of Fox Company are currently pu

Question

The materials used by the Winston-Salem Division of Fox Company are currently purchased from outside suppliers at $68 per unit. These same materials are produced by Fox's Flagstaff Division. The Flagstaff Division can produce the materials needed by the Winston-Salem Division at a variable cost of $27 per unit. The division is currently producing 91,000 units and has capacity of 130,000 units. The two divisions have recently negotiated a transfer price of $39 per unit for 39,000 units.

By how much will each division's income increase as a result of this transfer?

Winston-Salem Division $ _____

Flagstaff Division $______

Explanation / Answer

Solution:

For, Winston - Salem Division, Difference from outside supplier's price and to the price offered by the Flagstaff division is the increase in income, i.e - ($ 68 - $ 39) * 39,000 units

= $ 29 * 39,000

= $ 1,131,000

For Flagstaff division increase in income = ( $ 39 - $ 27 ) * 39,000 units

= $ 12 * 39,000 units

= $ 468,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.