The Micro Division of Woomera Wi-Fi Produces Micro Chips That

Essay

The Micro Division of Woomera Wi-Fi produces micro chips that are sold to the Assembly Division and to outsiders.The Micro Division produces chips that have variable costs of $6 per unit.Its 2017 sales were 150 000 to outsiders at $10 per unit and 40 000 units to the Assembly Division at 140% of variable costs.Under a dual transfer-pricing system,the Assembly Division pays only the variable cost per unit.The fixed costs of the Micro Division are $250 000 per year.
Assembly Division sells its finished products to outside customers for $23 per unit.Assembly Division has variable costs of $5.00 per unit in addition to the costs from the Micro Division.The annual fixed costs of Assembly Division were $170 000.There were no beginning or ending inventories during the year.
Required:
What are the operating profits of the two divisions and the company as a whole for the year? Explain why the company's operating profit is less than the sum of the two divisions' total profits.
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