differential analysis On October 1, White Way Stores Inc. is considering leasing
ID: 2497717 • Letter: D
Question
differential analysis
On October 1, White Way Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $162,000 of 5% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:
EXOPLEX INDUSTRIES INC.
Divisional Income Statements
For the Year Ended December 31, 2016
1
Semiconductors Division
Navigational Systems Division
Total
2
Sales:
3
2,240 units @ $396 per unit
$887,040.00
$887,040.00
4
3,675 units @ $590 per unit
$2,168,250.00
2,168,250.00
5
$887,040.00
$2,168,250.00
$3,055,290.00
6
Expenses:
7
Variable:
8
2,240 units @ $232 per unit
$519,680.00
$519,680.00
9
3,675 units @ $472* per unit
$1,734,600.00
1,734,600.00
10
Fixed
220,000.00
325,000.00
545,000.00
11
Total expenses
$739,680.00
$2,059,600.00
$2,799,280.00
12
Income from operations
$147,360.00
$108,650.00
$256,010.00
*$432 of the $472 per unit represents materials costs, and the remaining $40 per unit represents other variable conversion expenses incurred within the Navigational Systems Division.
The Semiconductors Division is presently producing 2,240 units out of a total capacity of 2,820 units. Materials used in producing the Navigational Systems Division’s product are currently purchased from outside suppliers at a price of $432 per unit. The Semiconductors Division is able to produce the components used by the Navigational Systems Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.
EXOPLEX INDUSTRIES INC.
Divisional Income Statements
For the Year Ended December 31, 2016
Explanation / Answer
1)
Minimum Transfer price for (2820-2240) 580 Unit would be Variable cost per unit i.e $ 232 and Minimum Transfer for beyond 580 unit would be Sale Prcie i.e $ 390
Maximum Transfer would be Purchase price i.e $ 432
Therefore Transfer Price between 232 to 432 is viable upto 580 Unit and Transfer Price between 390 to 432 is viable beyond 580 Unit .
So market price of $432 per unit would be consider as an appropriate transfer price for Exoplex Industries Inc as it lies within range
2)
Semiconductors Division :
Net Income would increase = 580*(310-232)
Net Income would increase = 45240
Navigational Systems Division :
Net Income would increase = 580*(432-310)
Net Income would increase = 70760
Total company :
Net Income would increase = 580*(432-232)
Net Income would increase = 116000
3)
4)
Semiconductors Division :
Net Income would increase = 580*(340-232)
Net Income would increase = 62640
Navigational Systems Division :
Net Income would increase = 580*(432-340)
Net Income would increase = 53360
Total company :
Net Income would increase = 580*(432-232)
Net Income would increase = 116000
EXOPLEX INDUSTRIES INC. Divisional Income Statements For the Year Ended December 31, 2016 1 Semiconductors Division Navigational Systems Division Total 2 Sales: 3 2,240 units @ $396 per unit 887,040 887,040 4 3,675 units @ $590 per unit 2,168,250 2,168,250 5 Division Transfer 580 Unit @ $ 310 per unit 179,800 179,800 6 1,066,840 2,168,250 3,235,090 7 Expenses: 8 Variable: 9 2,820 units @ $232 per unit 654,240 654,240 10 3,095 units @ $472* per unit 1,460,840 1,460,840 11 580 Units @ (310+40) per unit 203,000 203,000 12 Fixed 220,000 325,000 545,000 13 Total expenses 874,240 1,988,840 2,863,080 14 Income from operations 192,600 179,410 372,010Related Questions
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