divisions as an investment center. Division A is currently selling 30,000 units of Part X annually, although it has sufficient production capacity to produce 42,000 parts per year. Variable manufacturing costs amount to P36 per part, while the total fixed costs amount to P180,000. These 30,000 parts are sold to outside market at P76 per part. Division S, also a part of the Krafts, Inc., has indicated that they would like to get from Division A 3,000 parts at a price of P74. Per part because they presently buying the parts from
divisions as an investment center. Division A is currently selling 30,000 units of Part X annually, although it has sufficient production capacity to produce 42,000 parts per year. Variable manufacturing costs amount to P36 per part, while the total fixed costs amount to P180,000. These 30,000 parts are sold to outside market at P76 per part. Division S, also a part of the Krafts, Inc., has indicated that they would like to get from Division A 3,000 parts at a price of P74. Per part because they presently buying the parts from
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Amswer no.1 to 3
Please provide complete solution
Transcribed Image Text:10.17
Krafts, Inc. uses the decentralized form of organization and considers each of its
divisions as an investment center. Division A is currently selling 30,000 units of Part X
annually, although it has sufficient production capacity to produce 42,000 parts per year.
Variable manufacturing costs amount to P36 per part, while the total fixed costs amount to
P180,000. These 30,000 parts are sold to outside market at P76 per part.
Division S, also a part of the Krafts, Inc., has indicated that they would like to get from
Division A 3,000 parts at a price of P74. Per part because they presently buying the parts from
the outside supplier at that price.
REQUIRED:
1. Compute the effect in the operating income of Krafts, Inc. as a whole if Division S
purchases the 3,000 parts from Division A.
2. What is the minimum price that Division A is willing to sell the parts to Division S?
3. What is the maximum price that Division S is willing to pay for the parts from
Division A?
Assume that Division A could sell the entire 42,000 parts to outside market. What is the
effect on the overall operating income of Krafts, Inc. if Division A will be required by the top
management to sell 3,000 parts to Division S at a price of
b. P74
a. Р36
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