Case 13-52 Interdivisional Transfers; Pricing the Final Product (LO 13-6, Contin

Question

Case 13-52 Interdivisional Transfers; Pricing the Final Product (LO 13-6, Continental Industries is a diversified corporation with separate operating divisions. Each division's performance is evaluated on the basis of profit and return on investment. The Air Comfort Division manufactures and sells air-conditioner units. The coming year's budgeted income statement, which follows, is based upon a sales volume of 16,000 units AIR COMFORT DIVISION Budgeted Income Statement (In thousands) Total Per Unit Sales revenue $6,576 S 411 Manufacturing costs: Compressor Other direct material Direct labor Variable overhead Fixed overhead $1.264 $ 79 432 27 368 23 464 29 384 24 Total manufacturing costs $2912 $ 182 Gross margin $3,664 $229 Operating expenses 1 of 10 Next > ere to search

Explanation / Answer

1-a. New sales volume=16000+3840=19840 units Income statement Air comfort division Total Per unit Sales revenue 7828070.4 394.56 (411*0.96) Manufacturing costs Compressor 1567360 79 Other direct material 535680 27 Direct labor 456320 23 Variable overhead 575360 29 Fixed overhead 384000 19.35 Total manufacturing costs 3518720 177.35 Gross margin 4309350.4 217.21 Operating expenses Variable selling 456320 (19840*23) Fixed selling 320000 Fixed administrative 592000 Total operating expenses 1368320 Net income before taxes 2941030.4 Current net income=2384000 Increase in net income=2941030-2384000=557030 (Note;There will not be any change in the net income of compressor units.Hence change in Air comfort division will be the change for the whole company) 1-b. Yes 2 Compressor units Internal Sales External Sales Total Units sold 19840 55160 (75000-19840) Selling price 47 90 Sales revenue 932480 4964400 5896880 Manufacturing costs Direct material 214272 772240 986512 19840*(14-3.20) (55160*14) Direct labor 198400 551600 750000 (19840*10) (55160*10) Variable overhead 238080 661920 900000 (19840*12) (55160*12) Fixed overhead 960000 Total manufacturing costs 3596512 Gross margin 2300368 Operating expenses: Variable selling 0 441280 441280 (55160*8) Fixed selling 384000 Fixed admimistrative 576000 Total operating expenses 1401280 Net income 899088 Current net income=2496000-1472000=1024000 Decrease in net income=1024000-899088=124912 2 Air Comfort division Total Sales revenue 8154240 (19840*411) Manufacturing costs Compressor 932480 (19840*47) Other direct material 535680 (19840*27) Direct labor 456320 (19840*23) Variable overhead 575360 (19840*29) Fixed overhead 384000 Total manufacturing costs 2883840 Gross margin 5270400 Operating expenses Variable selling 456320 (19840*23) Fixed selling 320000 Fixed administrative 592000 Total operating expenses 1368320 Net income before taxes 3902080 Total net income for continental industries=3902080+899088=4801168 Current net income of continental industries=1024000+2384000=3408000 Increase in net income=4801168-3408000=1393168

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.