High Division Sells a Part Internally to Low Division

question 64

Multiple Choice

High Division sells a part internally to Low Division.Low Division uses the part to produce inexpensive products sold at discount stores.High Division incurs costs of $1.50 per part,while Low Division incurs additional costs of $4.80 per product.High 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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