Hitek, Inc If the Diodes Division Can Sell All of Its Production

question 101

Short Answer

Hitek, Inc. has 2 divisions, Diodes and Boards. The diode can be sold internally or externally. If sold externally, the sales price is $15 per diode. The Boards division needs 3 diodes for each electronic board it produces. The external sales prices and costs are: $$\begin{array} { l r r } & \text { Diodes } & \text { Boards } \\\text { Sales price per unit } & \$ 15.00 & \$ 16.50 \\\text { Variable costs (direct) per unit } & 6.00 & 9.00 \\\text { Fixed costs per unit } & 3.00 & 6.00\end{array}$$ If the Diodes division can sell all of its production externally, what is the minimum price at which it would be willing to sell internally, and what is the maximum price the Board Division would be willing to pay? $\begin{array}{ll}\text { Diodes } & \text { Boards } \\\text { Willing to Sell } &\text { Willing to Pay }\\\text { a) } \$ 15 & \$ 2.50 \\\text { b) } \$ 15 & \$ 7.50 \\\text { c) } \$ 15 & \$ 15.00 \\\text { d) } \$ 27 & \$ 27.00\end{array}$

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Definitions:

Prepaid Rent Expense

An expense account that records payments for rent made in advance of the rental period.

Adjusting Entry

At the end of an accounting timeframe, records are made to attribute income and spending to the specific period in which they were incurred.

Accumulated Depreciation

The total sum of depreciation for a fixed asset that has been charged to expense since the asset was acquired and placed into service.

Book Value

The value of an asset as recorded on the balance sheet, calculated as the cost of the asset minus any accumulated depreciation.