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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,

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 $ 186
Variable cost per circuit board $ 128
Number of circuit boards:
Produced during the year 22,000
Sold to outside customers 14,500
Sold to Division B 7,500

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 $260 in additional variable cost per instrument and then sold the instruments for $670 each.

Required:

1. Prepare income statements for Division A, Division B, and the company as a whole.

2. Assume Division As manufacturing capacity is 22,000 circuit boards. Next year, Division B wants to purchase 8,500 circuit boards from Division A rather than 7,500. (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?

Prepare income statements for Division A, Division B, and the company as a whole.

Division A Division B Total Company
Sales $4,092,000 $5,025,000
Expenses:
Added by the division
Transfer price paid
Total expenses 0 0 0
Net operating income $4,092,000 $5,025,000 $0

Assume Division As manufacturing capacity is 22,000 circuit boards. Next year, Division B wants to purchase 8,500 circuit boards from Division A rather than 7,500. (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?

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

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