question archive The materials used by the Burlington Division of Wilson Company are currently purchased from outside suppliers a $100 per unit
The materials used by the Burlington Division of Wilson Company are currently purchased from outside suppliers a $100 per unit
Subject:AccountingPrice:2.89 Bought3
The materials used by the Burlington Division of Wilson Company are currently purchased from outside suppliers a $100 per unit. These same materials are produced by the Racine Division. The Racine Division cart produce the materials needed by the Burlington Division at a variable cost of $70 per unit. The division is currently producing 160,000 units and has capacity of 200,000 units. The two divisions have recently negotiated a transfer price of $85 per unit for 40,000 units. By how much will each division’s income increase as a result of this transfer?
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Increase in Racine (Supplying)
Division’s Income from Operations = (Transfer Price – Variable Cost per Unit) ×
Units Transferred
Increase in Racine (Supplying)
Division’s Income from Operations = ($85 – $70) × 40,000 units = $600,000
Increase in Burlington (Purchasing)
Division’s Income from Operations = (Market Price – Transfer Price) × Units
Transferred
Increase in Burlington (Purchasing)
Division’s Income from Operations = ($100 – $85) × 40,000 units = $600,000
