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Sore Feet Ltd. manufactures only one type of shoe and has two divisions, the Sole...

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Question

Accounting

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.

$4,020,000

B.

$3,900,000

C.

$2,220,000

D.

$4,400,000

E.

$2,400,000

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