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 $ 193 Variable cost per circuit board $ 111 Number of circuit boards: Produced during the year 21,500 Sold to outside customers 16,000 Sold to Division B 5,500 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 $260 in additional variable cost per instrument and then sold the instruments for $630 each. 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 6,500 circuit boards from Division A rather than 5,500. (Circuit boards of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the additional 1,000 circuit boards to Division B or continue to sell them to outside customers?
1.
Division B's variable cost = 111 + 260
= $371
Income statements
Division A | Division B | Company | |
Sales (i) | 21,500 x 193 = $4,149,500 | 5,500 x 630 = $3,465,000 | $7,614,500 |
Variable cost (ii) | 21,500 x 111 = $2,386,500 | 5,500 x 371 = $2,040,500 | $4,427,000 |
Operating income (i) - (ii) | $1,763,000 | $1,424,500 | $3,187,500 |
2.
From the standpoint of the company as a whole, Division A should sell the additional 1,000 circuit boards to Division B since Circuit boards of this type are not available from outside sources.
If Division A does not sell the circuit boards to Division B, company would lose the chance the earn a profit 1,000 circuit boards.
Company would lose a chance to earn = 1,000 x (630 - 371)
= 1,000 x 259
= $259,000
Kindly comment if you need further assistance. Thanks
Division A manufactures electronic circuit boards. The boards can be sold either to Division B of...
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 $ 181 Variable cost per circuit board $ 124 Number of circuit boards: Produced during the year 21,200 Sold to outside customers 14,200 Sold to Division B 7,000 Sales to Division B were at the same price as sales to outside customers. The...
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 $ 190 Variable cost per circuit board $ 118 Number of circuit boards: Produced during the year 20,500 Sold to outside customers 15,600 Sold to Division B 4,900 Sales to Division B were at the same price as sales to outside customers....
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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: $ 123 Selling price per circuit board Variable cost per circuit board Number of circuit boards: Produced during the year Sold to outside customers Sold to Division B 21,500 14,800 6,700 Sales to Division B were at the same price as sales to outside customers. The circuit boards...
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