The Compressor Division and the Fabrication Division of Plash Company, which exclusively produces one type of washing machine, respectively, are its two divisions. For the Fabrication Division, which completes the washing machine and sells it to retailers, the Compressor Division makes compressors. The Fabrication Division buys compressors from the Compressor Division. The Fabrication Division will spend $40.00 on a compressor, which is the market price. (Skip updates to the inventory.) It is expected that the fixed costs for the Compressor Division remain constant for orders between 5,000 and 10,000 units. The Fabrication Division's fixed expenses are estimated to be $7.50 per unit at 10,000 units. Compressor's costs per compressor are: Direct materials Direct labor Variable overhead Division fixed costs Fabrication's costs per completed air conditioner are: Direct materials $15.00 $7.25 $3.00 $7.50 $150.00 $62.50 $20.00 $7.50 Assume that 1,000 compressors are built and transferred to the Fabrication Division at a transfer price that is equal to 150 percent of the Compressor Division's total expenses. The operational income of the Compressor Division comprises a $15 875 a b $18 250 c $16.375 d $17 375 Direct labor Variable overhead Division fixed costs
The Compressor Division and the Fabrication Division of Plash Company, which exclusively produces one type of washing machine, respectively, are its two divisions. For the Fabrication Division, which completes the washing machine and sells it to retailers, the Compressor Division makes compressors. The Fabrication Division buys compressors from the Compressor Division. The Fabrication Division will spend $40.00 on a compressor, which is the market price. (Skip updates to the inventory.) It is expected that the fixed costs for the Compressor Division remain constant for orders between 5,000 and 10,000 units. The Fabrication Division's fixed expenses are estimated to be $7.50 per unit at 10,000 units. Compressor's costs per compressor are: Direct materials Direct labor Variable overhead Division fixed costs Fabrication's costs per completed air conditioner are: Direct materials $15.00 $7.25 $3.00 $7.50 $150.00 $62.50 $20.00 $7.50 Assume that 1,000 compressors are built and transferred to the Fabrication Division at a transfer price that is equal to 150 percent of the Compressor Division's total expenses. The operational income of the Compressor Division comprises a $15 875 a b $18 250 c $16.375 d $17 375 Direct labor Variable overhead Division fixed costs
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Compressor Division and the Fabrication Division of Plash
Company, which exclusively produces one type of washing machine,
respectively, are its two divisions. For the Fabrication Division, which
completes the washing machine and sells it to retailers, the Compressor
Division makes compressors. The Fabrication Division buys compressors
from the Compressor Division. The Fabrication Division will spend
$40.00 on a compressor, which is the market price. (Skip updates to the
inventory.) It is expected that the fixed costs for the Compressor
Division remain constant for orders between 5,000 and 10,000 units.
The Fabrication Division's fixed expenses are estimated to be $7.50 per
unit at 10,000 units.
Compressor's costs per compressor are:
Direct materials
$15.00
Direct labor
$7.25
Variable overhead
$3.00
Division fixed costs
$7.50
Fabrication's costs per completed air conditioner are:
Direct materials
$150.00
Direct labor
$62.50
Variable overhead
$20.00
Division fixed costs
$7.50
Assume that 1,000 compressors are built and transferred to the Fabrication
Division at a transfer price that is equal to 150 percent of the Compressor
Division's total expenses. The operational income of the Compressor Division
comprises
a. $15,875 a. b. $18,250 c. $16,375 d. $17,375
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