Instructions none Starting Questions none Divisional Income Statements none Fina
ID: 2445071 • Letter: I
Question
Instructions
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Starting Questions
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Divisional Income Statements
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Final Question
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Instructions
Garcon Inc. manufactures electronic products, with two operating divisions, the Consumer and Commercial divisions. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:
Question not attempted.
GARCON INC.
Divisional Income Statements
For the Year Ended December 31, 2016
1
Consumer Division
Commercial Division
Total
2
Sales:
3
14,400 units @ $144 per unit
$2,073,600.00
$2,073,600.00
4
21,600 units @ $275 per unit
$5,940,000.00
5,940,000.00
5
$2,073,600.00
$5,940,000.00
$8,013,600.00
6
Expenses:
7
Variable:
8
14,400 units @ $104 per unit
$1,497,600.00
$1,497,600.00
9
21,600 units @ $193* per unit
$4,168,800.00
4,168,800.00
10
Fixed
200,000.00
520,000.00
720,000.00
11
Total expenses
$1,697,600.00
$4,688,800.00
$6,386,400.00
12
Income from operations
$376,000.00
$1,251,200.00
$1,627,200.00
*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.
The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division’s product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.
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Starting Questions
1. Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain.
selector 1
No
Yes
. When selector 2
unused capacity
an outside market
budgeted cost
a purchase point
exists in the supplying division (the Consumer Division), the use of the market price approach may not lead to the maximization of total company income.
Points:
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Explanation
2. If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase?
The Consumer Division's income from operations would increase by
Points:
The Commercial Division's income from operations would increase by
Points:
Garcon Inc.’s total income from operations would increase by
Points:
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Explanation
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Divisional Income Statements
3. Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2.
Question not attempted.
GARCON INC.
Divisional Income Statements
For the Year Ended December 31, 2016
1
Consumer Division
Commercial Division
Total
2
Sales:
3
14,400 units
4
2,880 units
5
21,600 units
6
7
Expenses:
8
Variable:
9
17,280 units
10
2,880 units
11
18,720 units
12
Fixed
13
Total expenses
14
Income from operations
Solution
GARCON INC.
Divisional Income Statements
For the Year Ended December 31, 2016
1
Consumer Division
Commercial Division
Total
2
Sales:
3
14,400 units
4
2,880 units
5
21,600 units
6
7
Expenses:
8
Variable:
9
17,280 units
10
2,880 units
11
18,720 units
12
Fixed
13
Total expenses
14
Income from operations
Points:
Feedback
Check My Work
Explanation
none
X
Final Question
4. If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?
The Consumer Division's income from operations would increase by
Points:
The Commercial Division's income from operations would increase by
Points:
Garcon Inc.'s total income from operations would increase by
GARCON INC.
Divisional Income Statements
For the Year Ended December 31, 2016
Explanation / Answer
1)Yes it would be an appropirate transfer price since consumer division varaiable cost per unti is only $104 and it is getting $150 peer unit .On the other hand commercial division cost fo material reamins the same there is neither gain or loss for him.
2) Consumer increase in income = ( transfer price - variable cost ) units transferred
= ($115 - $106) 2880 = $31,680
Commercial division increase = ( market price - Transfer price ) units
=($150 - $115) 2880 = $100,800
Overall companys incomer wull increase by $132,480
3)
4)Transfer price $126
Consumer division ( $126 -$104 )2880 = $63,360
commercial division($150 - $126)2880 = 69,120
total increase in income = $132,480
Consumer division Commercial division Total Sales: 14,400 units @144 $2,073,600 $ 2,073,600 2,880 units @115 331,200 331,200 21,600 units@275 $5,940,000 5,940,000 $2,404,800 $5,940,000 $8,344,800 Expenses: Variable 17280units @104 $1,797,120 $1,797,120 2880 units @115+43 $455,040 455,040 18720 units @193 $3,612,960 $3,612,960 fixed 200,000 520,000 720,000 Total expenses 1,997,120 4,588,000 6,585,120 income from operations 407,680 1,352,000 1,759,680