Division A manufactures electronic circuit boards. The boards can be sold either to Division B...
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Accounting
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 | $ 181 |
|---|---|
| Variable cost per circuit board | $ 118 |
| Number of circuit boards: | |
| Produced during the year | 20,400 |
| Sold to outside customers | 15,200 |
| Sold to Division B | 5,200 |
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 $230 in additional variable cost per instrument and then sold the instruments for $670 each.
Required:
1. Calculate the net operating incomes earned by Division A, Division B, and the company as a whole.
2. Assume Division As manufacturing capacity is 20,400 circuit boards. Next year, Division B wants to purchase 6,200 circuit boards from Division A rather than 5,200. (Circuit boards of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000 additional circuit boards to Division B or continue to sell them to outside customers?
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