Division A manufactures electronic circuit boards. The boards can be sold either
ID: 2586054 • Letter: D
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: Selling price per circuit board Variable cost per circuit board Number of circuit boards $ 191 $ 121 Produced during the yean Sold to outside customers Sold to Division B 21,606 14,4ee 7,200 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 $240 in additional variable cost per instrument and then sold the instruments for $610 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 21,600 circuit boards. Next year, Division B wants to purchase 8,200 circuit boards from Division A rather than 7,200. (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?Explanation / Answer
1. Answer :
B Answer:
Option 1 : Sell additional 1,000 circuit boards to division B
Option 2 : Continue to sell 1,000 circuit boards outside
Net income of the company as a whole will be $ 2,800,800 (as calculated in part 1 of the qquestion)
Conclusion : Since overall income of the company is more in option 1, i.e. $ 2,979,800. so it should be selected.
Income Statement Particulars Division A Division B Company Revenue 2,750,400 4,392,000 7,142,400 Transferred to Division B 1,375,200 0 0 Totals 4,125,600 4,392,000 7,142,400 Less: Variable Cost -2,613,600 -1,728,000 -4,341,600 Transferred from Divison A 0 -1,375,200 0 Net Income 1,512,000 1,288,800 2,800,800