Benjamin Manufacturing Company Has Two Divisions, X and Y

question 95

Essay

Benjamin Manufacturing Company has two divisions, X and Y. Division X prepares the steel for processing. Division Y processes the steel into the final product. No inventories exist in either division at the beginning or end of 2018. During the year, Division X prepared 80,000 lbs. of steel at a cost of $800,000. All the steel was transferred to Division Y where additional operating costs of $5 per lb. were incurred. The final product was sold for $3,000,000.
Required:
a.Determine the gross profit for each division and for the company as a whole if the transfer price is $8 per lb.
b.Determine the gross profit for each division and for the company as a whole if the transfer price is $12 per lb.

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Definitions:

Right to Possess

The legal right of an individual or entity to have control over a property or item.

Incidental Services

Additional services that are not the primary focus of a contract but are provided as a minor or secondary aspect of it.

UCC

A comprehensive set of legal guidelines governing sales and commercial transactions across the U.S., facilitating consistency and predictability.

Good Faith

An honest intention to act without taking unfair advantage over another party in a transaction.