1.Materials used by Square Yard Products Inc. in producing Division 3\'s product

Question

1.Materials used by Square Yard Products Inc. in producing Division 3's product are currently purchased from outside suppliers at a cost of $5 per unit. However, the same materials are available from Division 6. Division 6 has unused capacity and can produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer price of $3.20 per unit is established, and 40,000 units of material are transferred, with no reduction in Division 6's current sales.

How much would Division 6's income from operations increase?

A $8,000
B $15,000
C $80,000
D $150,000


2. Cost of goods sold
Rails: $47,200
Locomotive: $30,720

Direct operating expenses
Rails: 27,200
Locomotive: 20,040

Net sales
Rails: 98,000
Locomotive: 68,000

Corporate Totals:
Interest expense $ 2,040
General overhead 18,160
Income tax 4,700


The income from operations for the Locomotive Division is

A) $47,800
B) $20,600
C) $17,240
D) $37,280


could you show how the answer is calculated

Explanation / Answer

increased net income=3.20-3*40000=$8000 The income from operations for the Locomotive Division is net sales=68000 less:cost of good sold-30720 income from operations=68000-30720=$37280 note-direct operating expenses are always included in cost of good sold

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