Question

Plish Company manufactures only one type of washing machine and has two divisions, the Compressor Division, and the Fabrication Division. The Compressor Division manufactures compressors for the Fabrication Division, which completes the washing machine and sells it to retailers. The Compressor Division "sells" compressors to the Fabrication Division. The market price for the Fabrication Division to purchase a compressor is $60.00. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 13,000-18,000 units. The fixed costs for the Fabrication Division are assumed to be $11.00 per unit at 18,000 units. Compressor's costs per compressor are: Direct materials $17 Direct labor $14.50 Variable overhead $3.50 Division fixed costs $11.50 Fabrication's costs per completed air conditioner are: Direct materials $154.00 Direct labor $67.50 Variable overhead $26.00 Division fixed costs $11.50 If the Fabrication Division sells 1000 air conditioners at a price of $475.00 per washing machine to customers, what is the operating income of both divisions together?

Group of answer choices

$169,500

$169,000

$167,500

$149,500

Answer 1

	Compressor division
Direct material	$17
Direct labor	14.50
Variable overhead	3.50
Division fixed costs	11.50
Cost per compressor	$46.5

	Fabrication division
Cost per compressor	$46.5
Direct material	154
Direct labor	67.50
Variable overhead	26
Division fixed costs	11.50
Total unit costs	$305.5

Operating income = Total sales - Total costs

Operating income = $475,000(1,000*$475) - 305,500(1,000*$305.5)

Operating income = $169,500