The Micro Division of Woomera Wi-Fi Produces Micro Chips That

question 120

Essay

The Micro Division of Woomera Wi-Fi produces micro chips that are sold to the Assembly Division and to outsiders.The Micro Division produces chips that have variable costs of $6 per unit.Its 2017 sales were 150 000 to outsiders at $10 per unit and 40 000 units to the Assembly Division at 140% of variable costs.Under a dual transfer-pricing system,the Assembly Division pays only the variable cost per unit.The fixed costs of the Micro Division are $250 000 per year.
Assembly Division sells its finished products to outside customers for $23 per unit.Assembly Division has variable costs of $5.00 per unit in addition to the costs from the Micro Division.The annual fixed costs of Assembly Division were $170 000.There were 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:

Total Inventory

The sum value of all types of inventory a company holds, including raw materials, work-in-progress, and finished goods.

Gross Profit Ratio

A financial metric that shows the portion of sales revenue that exceeds the cost of goods sold, indicating efficiency in production and sales.

Loss on Purchase Commitments

A financial loss that occurs when a company commits to purchasing goods at a certain price but the market value of these goods decreases before the purchase is completed.

Continuing Operations

The segments or activities of a business expected to continue for the foreseeable future, excluding any discontinued operations.