Question
Sore Feet Ltd. manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles
Sore Feet Ltd. manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $60. (Ignore changes in inventory.) The per unit fixed costs are based on a production of 50,000 pairs of shoes.
Sole's costs per pair of soles
are:
Direct materials | $6 |
Direct labour | $2 |
Variable overhead | $1 |
Division fixed costs | $2 |
Assembly's costs per completed pair of shoes
are:
Direct materials | $7 |
Direct labour | $4 |
Variable overhead | $2 |
Division fixed costs | $4 |
If the Assembly Division sells 80,000 pairs of shoes at a price of $55.75 a pair to customers, what is the company's operating income?
A.
$2,400,000
B.
$4,020,000
C.
$4,400,000
D.
$3,900,000
E.
$2,220,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started