Division A manufactures electronic circuit boards. The boardscan be sold either to Division B of the same company or to outsidecustomers. Last year, the following activity occurred in DivisionA:
Selling priceper circuit board $ 181 Variable costper circuit board $ 127 Number ofcircuit boards: Produced duringthe year 21,900 Sold to outsidecustomers 14,100 Sold to DivisionB 7,800
Sales to Division B were at the same price as sales to outsidecustomers. The circuit boards purchased by Division B were used inan electronic instrument manufactured by that division (one boardper instrument). Division B incurred $280 in additional variablecost per instrument and then sold the instruments for $600each.
Required:
1. Prepare income statements for Division A, Division B, and thecompany as a whole.
divisionA Division B Totalcompany
sales:
Expenses:
added by the division
transfer price paid:
total expenses
net operating income:
2. Assume that Division Aâs manufacturing capacity is 21,900circuit boards. Next year, Division B wants to purchase 8,800circuit boards from Division A rather than 7,800. (Circuit boardsof this type are not available from outside sources.) What shouldDivision A do from the standpoint of the company as a whole?
A Continue to sell the circuit boards to outside customers. B Sell the 1,000 additional circuit boards to Division B.
Division A manufactures electronic circuit boards. The boardscan be sold either to Division B of the same company or to outsidecustomers. Last year, the following activity occurred in DivisionA:
| Selling priceper circuit board | $ | 181 | |
| Variable costper circuit board | $ | 127 | |
| Number ofcircuit boards: | |||
| Produced duringthe year | 21,900 | ||
| Sold to outsidecustomers | 14,100 | ||
| Sold to DivisionB | 7,800 | ||
Sales to Division B were at the same price as sales to outsidecustomers. The circuit boards purchased by Division B were used inan electronic instrument manufactured by that division (one boardper instrument). Division B incurred $280 in additional variablecost per instrument and then sold the instruments for $600each.
Required:
1. Prepare income statements for Division A, Division B, and thecompany as a whole.
divisionA Division B Totalcompany
sales:
Expenses:
added by the division
transfer price paid:
total expenses
net operating income:
2. Assume that Division Aâs manufacturing capacity is 21,900circuit boards. Next year, Division B wants to purchase 8,800circuit boards from Division A rather than 7,800. (Circuit boardsof this type are not available from outside sources.) What shouldDivision A do from the standpoint of the company as a whole?
| A | Continue to sell the circuit boards to outside customers. |
| B | Sell the 1,000 additional circuit boards to Division B. |
