Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

differential analysis On October 1, White Way Stores Inc. is considering leasing

ID: 2497717 • Letter: D

Question

differential analysis

On October 1, White Way Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $162,000 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

EXOPLEX INDUSTRIES INC.

Divisional Income Statements

For the Year Ended December 31, 2016

1

Semiconductors Division

Navigational Systems Division

Total

2

Sales:

3

2,240 units @ $396 per unit

$887,040.00

$887,040.00

4

3,675 units @ $590 per unit

$2,168,250.00

2,168,250.00

5

$887,040.00

$2,168,250.00

$3,055,290.00

6

Expenses:

7

Variable:

8

2,240 units @ $232 per unit

$519,680.00

$519,680.00

9

3,675 units @ $472* per unit

$1,734,600.00

1,734,600.00

10

Fixed

220,000.00

325,000.00

545,000.00

11

Total expenses

$739,680.00

$2,059,600.00

$2,799,280.00

12

Income from operations

$147,360.00

$108,650.00

$256,010.00

*$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division.

The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division’s product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.

EXOPLEX INDUSTRIES INC.

Divisional Income Statements

For the Year Ended December 31, 2016

Explanation / Answer

1)

Minimum Transfer price for (2820-2240) 580 Unit would be Variable cost per unit i.e $ 232 and Minimum Transfer for beyond 580 unit would be Sale Prcie i.e $ 390

Maximum Transfer would be Purchase price i.e $ 432

Therefore Transfer Price between 232 to 432 is viable upto 580 Unit and Transfer Price between 390 to 432 is viable beyond 580 Unit .

So market price of $432 per unit would be consider as an appropriate transfer price for Exoplex Industries Inc as it lies within range

2)

Semiconductors Division :

Net Income would increase = 580*(310-232)

Net Income would increase = 45240

Navigational Systems Division :

Net Income would increase = 580*(432-310)

Net Income would increase = 70760

Total company :

Net Income would increase = 580*(432-232)

Net Income would increase = 116000

3)

4)

Semiconductors Division :

Net Income would increase = 580*(340-232)

Net Income would increase = 62640

Navigational Systems Division :

Net Income would increase = 580*(432-340)

Net Income would increase = 53360

Total company :

Net Income would increase = 580*(432-232)

Net Income would increase = 116000

EXOPLEX INDUSTRIES INC. Divisional Income Statements For the Year Ended December 31, 2016 1 Semiconductors Division Navigational Systems Division Total 2 Sales: 3 2,240 units @ $396 per unit          887,040              887,040 4 3,675 units @ $590 per unit          2,168,250          2,168,250 5 Division Transfer 580 Unit @ $ 310 per unit          179,800              179,800 6      1,066,840          2,168,250          3,235,090 7 Expenses: 8 Variable: 9 2,820 units @ $232 per unit          654,240              654,240 10 3,095 units @ $472* per unit          1,460,840          1,460,840 11 580 Units @ (310+40) per unit              203,000              203,000 12 Fixed          220,000              325,000              545,000 13 Total expenses          874,240          1,988,840          2,863,080 14 Income from operations          192,600              179,410              372,010