Question

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 price percircuit board	$183
Variable cost percircuit board	$121
Number of circuitboards:
Produced during the year	20,200
Sold to outside customers	15,200
Sold to Division B	5,000

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 $290 in additional variablecost per instrument and then sold the instruments for $680each.

Required:
1.	Prepare income statements for Division A, Division B, and thecompany as a whole.

2.

Assume that Division A’s manufacturing capacity is 20,200circuit boards. Next year, Division B wants to purchase 6,000circuit boards from Division A rather than 5,000. (Circuit boardsof this type are not available from outside sources.) What shouldDivision A do from the standpoint of the company as a whole?

	Continue to sell the circuit boardsto outside customers.
	Sell the 1,000 additional circuitboards to Division B.