E7–7 Time allowed: 15 minutes 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:

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 £100 in additional cost per instrument and then sold the instruments for £300 each.
Required 1 Prepare profit statements for Division A, Division B, and the company as a whole.
2 Assume that Division A’s manufacturing capacity is 20,000 circuit boards.
Next year, Division B wants to purchase 5,000 circuit boards from Division A rather than 4,000. (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 1,000 additional circuit boards to Division B or continue to sell them to outside customers? Explain.

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Selling price per circuit board Production cost per circuit board Number of circuit boards: Produced during the year Sold to outside customers Sold to Division B 125 90 20,000 16,000 4,000