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 $191 Variable cost per circuit board $122 Number of Circuit Boards: Produced during the year: 21,100 Sold to outside customers 14,000 Sold to division B 7,100

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 $300 in additional variable cost per instrument and then sold the instruments for $640 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 21,100 circuit boards. Next year, Division B wants to purchase 8,100 circuit boards from Division A rather than 7,100. (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?

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

Sales Expenses Added by the Transfer price paid Total expenses Net operating income Division A Division B Total Company 0 0 0 0