What will the income of the Super Division be after all service department alloc

Question

What will the income of the Super Division be after all service department allocations?

d. $300,000

Mason Corporation had $650,000 in invested assets, sales of $700,000, income from operations amounting to $99,000, and a desired minimum rate of return of 15%.

The profit margin for Mason is:

d. 14.1%

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 3's income from operations increase?

ABC Corporation has three service departments with the following costs and activity base:



ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and activity information are as follows:

Explanation / Answer

1)   c. $200,000 ,

               Super Division

Direct revenue $650000

less: direct operating expense $100000

less: Graphic production cost [$200000*50000/100000] $100000

less: Accounting cost [$500000*500/2000] $125000

less: personnel department cost [$400000*125/400] $125000

income of the Super Division $200000

2) d. 14.1% ,

profit margin =  income from operations / sales

=  $99,000 /  $700,000

=14.1%

3) c. $72,000 ,

variable cost (from outside supplier) [40000 * $5] = $200000

less: variable cost (from Division 6) (40000 * $3.2) = $128000   

Decrease in variable cost (savings) = $72000

Division 3's income from operations increases by $72000

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