Benjamin Manufacturing Company Has Two Divisions, X and Y

Essay

Benjamin Manufacturing Company has two divisions, X and Y. Division X prepares the steel for processing. Division Y processes the steel into the final product. No inventories exist in either division at the beginning or end of 2016. During the year, Division X prepared 80,000 lbs. of steel at a cost of $800,000. All the steel was transferred to Division Y where additional operating costs of $5 per lb. were incurred. The final product was sold for $3,000,000.
Required:
a. Determine the gross profit for each division and for the company as a whole if the transfer price is $8 per lb.
b. Determine the gross profit for each division and for the company as a whole if the transfer price is $12 per lb.