The Micro Division of Silicon Computers Produces Computer Chips That

Essay

The Micro Division of Silicon Computers produces computer chips that are sold to the Personal Computer Division and to outsiders. Operating data for the Micro Division are as follows:
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The Personal Computer Division has just received an offer from an outside supplier to furnish chips at $8.60 each. The manager of Micro Division is not willing to meet the $8.60 price. She argues that it costs her $9.00 to produce and sell each chip. Sales to outside customers are at a maximum of 200,000 chips.
Required:
a. Verify the Micro Division's $9.00 unit cost figure.
b. Should the Micro Division meet the outside price of $8.60? Explain on a per unit basis.
c. Prepare a Micro Division income statement for the sale to the Personal Computer Division assuming that the unit selling price of $8.60 is agreed. Comment on the allocation of fixed costs.