Glen Manufacturing Company Has Two Divisions: a and B

Essay

Glen Manufacturing Company has two divisions: A and B. Division A prepares the steel for processing. Division B processes the steel into the final product. No inventories exist in either division at the beginning or end of the year. During the year, Division A prepared 25,000 lbs. of steel at a cost of $500,000. All the steel was transferred to Division B where additional operating costs of $10 per lb. were incurred. The final product was sold for $1,600,000.
Required:
a. Determine the gross profit for each division and for the company as a whole if the transfer price is $18 per lb.
b. Determine the gross profit for each division and for the company as a whole if the transfer price is $22 per lb.