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: $ 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 purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $280 in additional variable cost per instrument and then sold the instruments for $680 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 7,700 circuit boards from Division A rather than 6,700. (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?

Answer 1

Answer:

1
	Division A	Division B	Total Company
Sales	41,28,000	45,56,000	86,84,000
Added By Division	26,44,500	18,76,000	45,20,500
Transfer price paid		12,86,400	12,86,400
Total Expense	26,44,500	31,62,400	58,06,900
Contribution	14,83,500	13,93,600	28,77,100

Workings
Division A	Division B
Sales =(14800+6700)*192 =41,28,000	Sales =680*6700
Added By Division((14800+6700*)*123)=26,44,500	Added By Division =6700*280
Transfer price paid	=6700*192

2
Division B
Sales price	680
Variable expense =192+280	472
Contirbution	208
as the Division B is having contrbution it is advised to sell 1000 units to division B