1. Ajax Division of Carlyle Corporation produces electric motors, 20% of which are sold to Bradley Division of Carlyle and the remainer to outside customers. Carlyle treats ist divisions as profit centers and allows division managers to choose their sources of sales and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division's estimated sales and standard cost data for the year ending December 31, 2013 based on the full capacity of 100,000 units, are as follows: Sales Variable costs Fixed costs Gross margin Unit sales Bradley $900,000 (900,000) (300,000) $(300,000) 20,000 outsiders $8,000,000 (3,600,000) (1,200,000) $3,200,000 80,000 Ajax has an opportunity to sell the above 20,000 units to an outside customer at a price of $75 per unit during 2013 on a continuing basis. Bradley can purchase its requirements from an outsider supplier at a price of $85 per unit. Assuming that Carlyle desires to maximize its gross margin, should Ajax Division take on the new customer and drop its sales to Bradley for 2013, and why? No, because the gross margin of the corporation as a whole would decrease by $200,000. b. Yes, because Ajax Division's gross margin would increase by $300,000 c. Yes, because Ajax Division's gross margin would increase by $600,000 d. No, because Bradley Division's gross margin would decrease by $800,000
1. Ajax Division of Carlyle Corporation produces electric motors, 20% of which are sold to Bradley Division of Carlyle and the remainer to outside customers. Carlyle treats ist divisions as profit centers and allows division managers to choose their sources of sales and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division's estimated sales and standard cost data for the year ending December 31, 2013 based on the full capacity of 100,000 units, are as follows: Sales Variable costs Fixed costs Gross margin Unit sales Bradley $900,000 (900,000) (300,000) $(300,000) 20,000 outsiders $8,000,000 (3,600,000) (1,200,000) $3,200,000 80,000 Ajax has an opportunity to sell the above 20,000 units to an outside customer at a price of $75 per unit during 2013 on a continuing basis. Bradley can purchase its requirements from an outsider supplier at a price of $85 per unit. Assuming that Carlyle desires to maximize its gross margin, should Ajax Division take on the new customer and drop its sales to Bradley for 2013, and why? No, because the gross margin of the corporation as a whole would decrease by $200,000. b. Yes, because Ajax Division's gross margin would increase by $300,000 c. Yes, because Ajax Division's gross margin would increase by $600,000 d. No, because Bradley Division's gross margin would decrease by $800,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1. Ajax Division of Carlyle Corporation produces electric motors, 20% of which are sold to Bradley
Division of Carlyle and the remainer to outside customers. Carlyle treats ist divisions as profit centers
and allows division managers to choose their sources of sales and supply. Corporate policy requires
that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax
Division's estimated sales and standard cost data for the year ending December 31, 2013 based on
the full capacity of 100,000 units, are as follows:
Sales
Variable costs
Fixed costs
Gross margin
Unit sales
Bradley
$900,000
(900,000)
(300,000)
$(300,000)
20,000
outsiders
$8,000,000
(3,600,000)
(1,200,000)
$3,200,000
80,000
Ajax has an opportunity to sell the above 20,000 units to an outside customer at a price of $75 per
unit during 2013 on a continuing basis. Bradley can purchase its requirements from an outsider
supplier at a price of $85 per unit.
Assuming that Carlyle desires to maximize its gross margin, should Ajax Division take on the new
customer and drop its sales to Bradley for 2013, and why?
No, because the gross margin of the corporation as a whole would decrease by $200,000.
b. Yes, because Ajax Division's gross margin would increase by $300,000
c. Yes, because Ajax Division's gross margin would increase by $600,000
d. No, because Bradley Division's gross margin would decrease by $800,000
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