The Spanish Watch Company has two divisions and manufactures one type of watch. The two divisions arethe production Division and the Package & Delivery Division. The production Division manufactures watchesand then sells them to the Package & Delivery Division, which packs the watches and sells them to retailers.The market price for the Package & Delivery Division to purchase this watch is £40.Production's cost per watch are:Direct materials6.Direct labourVariable overheadDivision fixed costPackage & Delivery's cost per watch are:Direct materialsDirect labour.Variable overhead4Division fixed cost16Notes: Fixed costs shown above are per watch for 100,000 units.Required:a) Assume the transfer price for a watch is 160% of full costs of the Production Division and 100,000 watchesare produced and sold to the Package & Delivery Division. What is the Production Division's operating in-come?b) If the Package & Delivery Division purchases 100,000 watches from production departments and sells toretailers at a price of £150 per watch, what is the operating income of Spanish Watch Company?

Answered: The Spanish Watch Company has two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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