Highpointe Division Sells a Part Internally to Low Division

question 106

Multiple Choice

Highpointe Division sells a part internally to Low Division.Low Division uses the part to produce inexpensive products sold at discount stores.Highpointe Division incurs costs of $1.50 per part,while Low Division incurs additional costs of $4.80 per product.Highpointe Division sells the part to Low Division for $2.00 per part. Low Division can purchase the part from an outside supplier for $1.00 per part,but does not accept the offer.The final product is sold to external customers for $8.00 each.Which of the following formulas correctly reflects the company's operating income?

• A)$8.00 - $1.50 - $4.80 - $2.00 - $1.00 = $(1.30)
• B)$8.00 - $1.50 - $4.80 = $1.70
• C)$8.00 - $4.80 - $2.00 = $1.20
• D)$8.00 - $1.50 = $6.50

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Definitions:

Nominal Wages

The amount of money paid to employees without adjustment for inflation, representing the face value of wages at the time of payment.

Real Wages

The purchasing power of wages, adjusted for inflation, reflecting the actual goods and services that money earned as wages can buy.

Labor Shortages

A situation in which employers have difficulty filling positions with qualified candidates, often due to a lack of available or skilled workers.

Short-Run Aggregate Supply

The aggregate volume of products and services that companies intend to sell within a brief period in the economy, based on existing price levels.