Wentworth Company Has Two Divisions

question 36

Essay

Wentworth Company has two divisions.The Bottle Division produces products that have variable costs of $3 per unit.Its 2010 sales were 150 000 to outsiders at $5 per unit and 40 000 units to the Mixing Division at 140% of variable costs.Under a dual transfer-pricing system,the Mixing Division pays only the variable cost per unit.The fixed costs of the Bottle Division are $125 000 per year.
Mixing sells its finished products to outside customers for $11.50 per unit.Mixing has variable costs of $2.50 per unit in addition to the costs from the Bottle Division.The annual fixed costs of Mixing were $85 000.There was no beginning or ending inventories during the year.
Required:
What are the operating profits of the two divisions and the company as a whole for the year? Explain why the company's operating profit is less than the sum of the two divisions' total profits.
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Definitions:

Tax Payments

The compulsory contributions to state revenue levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.

International Trade

The exchange of goods and services across international borders or territories, involving imports and exports.

U.S. GDP

The total market value of all goods and services produced within the United States over a specific time period.

Total Dollars

Refers to the aggregate amount of currency in various forms within a particular economic context.