Help Save Division A manufactures electronic circuit boards. The boards can be s
ID: 2524146 • Letter: H
Question
Help Save 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 Selling price per circuit board Variable cost per circuit board Number of circuit boards: S 182 $126 Produced during the year Sold to outside customers Sold to Division B 21,5e0 14,400 7,100 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 Required: 1. Prepare income statements for Division A, Division B, and the company as a whole 2. Assume Division A's manufacturing capacity is 21.500 circuit boards. Next year, Division B wants to purchase 8,100 circult boards om outside sources) From the standpoint of the company as a whole, should Division A sell the additional 1,000 circuit boards to Division 8 or continue to sell them to outside customers? from Division A rather than 7100. (Circuit boards of this type are not avalable fr Complete this question by entering your answers in the tabs below. 14 of 17??: Next>Explanation / Answer
Solution:
1) Preparing Income Statements for Division A and Division B and the Company as Whole:
2. Company should sell the 1,000 additional circuit boards to Division B because it will result in higher profit for the Company as a whole. Not only Division A will earn profit on the additional Boards sold to B, but Division B will also earn Profit on them.
Division A Divison B Total Company Sales $3,913,000 (21,500 * $182) $4,899,000 (7,100 * $690) $8,812,000 Expenses: Added by the division $2,709,000 (21,500 * $126) $1,562,000 (7,100 * $220) $4,271,000 Transfer price paid - $1,292,200 (7,100 * $182) $1,292,200 Total expenses $2,709,000 $2,854,200 $5,563,200 Net Operating Income $1,204,000 $2,044,800 $3,248,800Related Questions
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