Answer the Following Questions Using the Information Below:
Calculate the Division

question 14

Multiple Choice

Answer the following questions using the information below:
Calculate the Division operating profit for the Cool Air Company which manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division.The Compressor Division manufactures compressors for the Assembly Division,which completes the air conditioner and sells it to retailers.The Compressor Division 'sells' compressors to the Assembly Division.The market price for the Assembly Division to purchase a compressor is $77.(Ignore changes in inventory. ) The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units.The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
$\begin{array} { l r } \text { Direct materials } & \$ 34.00 \\ \text { Direct labour } & \$ 14.50 \\ \text { Variable overhead } & \$ 6.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$

Assembly's costs per completed air conditioner are:
$\begin{array} { l r } \text { Direct materials } & \$ 300.00 \\ \text { Direct labour } & \$ 125.00 \\ \text { Variable overhead } & \$ 40.00 \\ \text { Division fixed costs } & \$ 15.00 \end{array}$
-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 110% of full costs?

• A)$80.00
• B)$84.70
• C)$76.45
• D)None of these options are correct.

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Definitions:

Equivalent Payments

Payments of equal value adjusted for timing or conditions to make them comparable.

Equal Payments

Regular payments of the same amount, often used in the context of loans or mortgages.

Interest Rate

The ratio of a loan that accumulates interest charges for the borrower, customarily articulated as an annual percentage of the loan outstanding.

Interest Rate

The percentage at which interest is charged or paid on a loan or investment over a specific period of time.