Question
Division As cost accounting records show that the cost of its product is $150 per unit$106 in variable costs and $44 in fixed costs. The
Division As cost accounting records show that the cost of its product is $150 per unit$106 in variable costs and $44 in fixed costs. The market price of the product, $170, barely covers Division As cost of production plus its selling and administrative costs. Division A has a maximum capacity of 101,000 units; it is currently producing and selling 79,000 units. Division B makes a product that uses Division As product and would like to purchase 10,100 units from Division A for $153. With $43 additional variable costs, Division B produces and sells the product for $261. Division As manager is not happy with Division Bs offer and is refusing to sell. Calculate the increase in corporate income in the following situations:
| a. | Division A sells 10,100 units to Division B for $153 each, and Division B produces and sells 10,100 units for $261. | |
| b. | Division A does not sell to Division B. Division B purchases 10,100 units from an external supplier at $170 each and produces and sells 10,100 units for $261. |
| Increase in corporate income | |
|---|---|
| a. | $ |
| b. | $ |
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Managerial Accounting
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips
3rd edition
77826485, 978-0077722074, 77722078, 978-0077826482
