Timekeeper Corporation Has Two Divisions, Distribution and Manufacturing

question 49

Multiple Choice

Timekeeper Corporation has two divisions, Distribution and Manufacturing. The company's primary product is high-end watches. Each division's costs are provided below:

The Distribution Division has been operating at a capacity of 4,009,000 units a week and usually purchases 2,004,500 units from the Manufacturing Division and 2,004,500 units from other suppliers at $13.00 per unit.
Assume 110,000 units are transferred from the Manufacturing Division to the Distribution Division for a transfer price of $8.00 per unit. The Distribution Division sells the 110,000 units at a price of $18 each to customers. What is the operating income of both divisions together?

• A) $347,600
• B) $392,150
• C) $997,700
• D) $634,700

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Definitions:

Nonneutral Tax

A tax that impacts differently on different types of economic activities, influencing the allocation of resources.

Perfectly Elastic

Describes a market situation where product demand or supply can vary greatly with a small change in price.

Excess Burden

The economic cost to society exceeding the revenue generated by a tax, often resulting from distortions in market behavior.

Economic Decisions

The choices made by individuals, businesses, governments, and other groups that affect the allocation of resources and the distribution of goods and services.