North Division Sells a Part Internally to South Division

question 101

Multiple Choice

North Division sells a part internally to South Division.South Division uses the part to produce inexpensive products sold at discount stores.North Division incurs costs of $1.50 per part,while South Division incurs additional costs of $4.80 per product.North Division sells the part to South Division for $2.00 per part.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 = $(0.30)
• 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:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up over time.

Operating Cash Flow

The amount of cash generated by a company's normal business operations.

Contribution Margin

The amount by which sales revenue exceeds variable costs, used to cover fixed costs and to generate profit.

Sales Quantity

The total number of units of a product or service sold within a specific period.