Question

Q3 Aurora Borealis is a division of Allen Industries which currently purchases materials from Fullco Distributors...

Q3 Aurora Borealis is a division of Allen Industries which currently purchases materials from Fullco Distributors for $210 per unit. These same materials are produced by another division of the Allen Company, Star Gazer. Star Gazer is not operating at full capacity and can produce these materials for Aurora at a variable cost of $160 per unit.

If a transfer price of $180 is negotiated and 50,000 units are produced and transferred from Star Gazer to Aurora:   (5 points each 15 points total)

How much will the income from operations for Aurora increase? $_______________________________

How much will the income from operations for Star Gazer increase? $_____________________________________

How much will the Allen Company’s total income from operations increase?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Since Aurora Division ful fill its requirement of 50000 units from the Star Gazer Divsion instead of procuring the same from outside as it is availbe at $180 instead of $210.

Total Savings would be = 50000*($210-$180)= $1500000.

2. Stae Gazer divsion have a variable cost of $160 for each unit and it will tansfer the same to the aurora Divison @ $180. than the increase in income from operation for star gazer will be:

50000*($180-$160)=$1000000

3.Total increase in income from operation for Allen Company will be total saving done by both the divisons

Hence Total Increase in income will be; $1000000+$1500000=$2500000.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Materials used by Best Bread Company in producing Division A's product are currently purchased from outside...
Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Divison B has unused capacity and can produce the materials by Division A at a variable cost of 20. A) If a transfer price of $25 per unit is established and 60,000 units of material are transfered with no reductions in division B's current sales, how much...
The materials used by Hibiscus Company's Division A are currently purchased from an outside supplier at...
The materials used by Hibiscus Company's Division A are currently purchased from an outside supplier at $54 per unit. Division B is able to supply Division A with 23,500 units at a variable cost of $50 per unit. The two divisions have recently negotiated a transfer price of $51 per unit for the 23,500 units. Enter an increase as a positive number and a decrease as a negative number. a. By how much will each division's income increase as a...
Transfer Pricing The materials used by the North Division of Horton Company are currently purchased from...
Transfer Pricing The materials used by the North Division of Horton Company are currently purchased from outside suppliers at $70 per unit. These same materials are produced by Horton’s South Division. The South Division can produce the materials needed by the North Division at a variable cost of $37 per unit. The division is currently producing 91,000 units and has capacity of 130,000 units. The two divisions have recently negotiated a transfer price of $56 per unit for 39,000 units....
Transfer Pricing The materials used by the Winston-Salem Division of Fox Company are currently purchased from...
Transfer Pricing The materials used by the Winston-Salem Division of Fox Company are currently purchased from outside suppliers at $34 per unit. These same materials are produced by Fox's Flagstaff Division. The Flagstaff Division can produce the materials needed by the Winston-Salem Division at a variable cost of $17 per unit. The division is currently producing 168,000 units and has capacity of 240,000 units. The two divisions have recently negotiated a transfer price of $24 per unit for 72,000 units....
in producing Division 3's product are currently purchased from outside suppliers at a cost of $5...
in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales. How much will Square Yard Products total...
Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements,...
Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows: Garcon Inc. Divisional Income Statements For the Year Ended December 31, 20Y2 1 Consumer Division Commercial Division Total 2 Sales: 3 14,400 units × $144 per unit $2,073,600.00 $2,073,600.00 4 21,600 units × $275 per unit $5,940,000.00 5,940,000.00 5 Total sales $2,073,600.00 $5,940,000.00 $8,013,600.00...
In the Bombadier Company, Division A has a product that can be sold either to outside...
In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Case 1   Case 2 Division A:                               Capacity in units           100,000                 100,000     Number of units sold externally            100,000                 60,000     Market selling price    $90         $75     Variable costs per unit               73           58     Fixed costs per unit based on capacity 10           10 Division B:                               Number of units needed for production           ...
Freight industries has several divisions. The Eastern Division can produce 3,000 units of product X at...
Freight industries has several divisions. The Eastern Division can produce 3,000 units of product X at the following costs: $75/unit variable costs and $70/unit fixed costs. Eastern sells units of X in the outside market for $180/unit. The Canadian Division can use product X in its manufacturing process. If Canadian spends $80 of variable cost per unit to process X further, it can sell the resulting product Y for $200/unit. Canadian can acquire product X from an outside supplier for...
Freight industries has several divisions. The Eastern Division can produce 3,000 units of product X at...
Freight industries has several divisions. The Eastern Division can produce 3,000 units of product X at the following costs: $75/unit variable costs and $70/unit fixed costs. Eastern sells units of X in the outside market for $180/unit. The Canadian Division can use product X in its manufacturing process. If Canadian spends $80 of variable cost per unit to process X further, it can sell the resulting product Y for $200/unit. Canadian can acquire product X from an outside supplier for...
Q#1. Division A, which is operating at capacity, produces a component that it currently sells in...
Q#1. Division A, which is operating at capacity, produces a component that it currently sells in a competitive market for $23 per unit. At the current level of production, the fixed cost of producing this component is $8 per unit and the variable cost is $10 per unit. Division B would like to purchase this component from Division A. The price that Division A should charge Division B for this component is : a. $10 per unit b. $18 per...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT