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 $176 Variable cost per circuit board $114 Number of circuit boards: Produced during the year 21,700 Sold to outside customers 15,900 Sold to Division B 5,800

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 $220 in additional variable cost per instrument and then sold the instruments for $650 each.

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

2. Assume that Division As manufacturing capacity is 21,700 circuit boards. Next year, Division B wants to purchase 6,800 circuit boards from Division A rather than 5,800. (Circuit boards of this type are not available from outside sources.) What should Division A do from the standpoint of the company as a whole?

Continue to sell the circuit boards to outside customers.

Sell the 1,000 additional circuit boards to Division B.