ffice Products Inc. manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a “super chip,” that can be used by both the Computer Division and other external customers. The following information is available on this month’s operations in the Computer Chip Division: Selling price per chip P50 Monthly capacity 10,000 chips Variable costs per chip P20 External sales 6,000 chips Fixed production costs P60,000 Internal sales 0 chips Fixed SG&A costs P90,000
Office Products Inc. manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a “super chip,” that can be used by both the Computer Division and other external customers. The following information is available on this month’s operations in the Computer Chip Division:
Selling price per chip P50 Monthly capacity 10,000 chips
Variable costs per chip P20 External sales 6,000 chips
Fixed production costs P60,000 Internal sales 0 chips
Fixed SG&A costs P90,000
Presently the Computer Division purchases no chips from the Computer Chips Division, but instead pays P45 to an external supplier for the 4,000 chips it needs each month.
If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of P40, total profits in the Computer Chip division will
a.rise by P20,000 compared to the prior period.
b. drop by P40,000 compared to the prior period.
c. drop by P20,000 compared to the prior period.
d. rise by P80,000 compared to the prior period.
2. Assume, for this question only, that the Computer Chip Division is selling all that it can produce to external buyers for P50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the Computer Division at P45? (Assume that the Computer Division can purchase the super chip from an outside supplier for P45.)
a. no effect b. P20,000 increase c. P20,000 decrease d. P90,000 increase
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