Biology Forums - Study Force

Scuba Tank Company manufactures only one type of oxygen tank; and, it has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the oxygen tanks and sells it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $41.50. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 6,000-9,000 units. The fixed costs for the Assembly Division are assumed to be $8.00 per unit at 9,000 units.

Compressor's costs per compressor are:
   Direct materials   $18.50
   Direct labor   $8.75
   Variable overhead   $4.00
   Division fixed costs   $8.00

Assembly's costs per completed air conditioner are:
   Direct materials   $165.00
   Direct labor   $75.00
   Variable overhead   $17.00
   Division fixed costs   $8.00

Required
Compute the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 160% of variable costs. Compute the transfer price per compressor from the Compressor Division to the Assembly Division if the transfer price per compressor is 125% of full costs. Next, assume the transfer price for a compressor is 135% of total costs of the Compressor Division and 1,250 of the compressors are produced and transferred to the Assembly Division, and compute the Compressor Division's operating income. Compute the operating income of the Compressor Division and the Assembly Division if the Assembly Division sells 1,250 oxygen tanks at a price of $395.50 per oxygen tank.
A) $40.00; $48.50; $16,000.00; $112,025.50
B) $42.00; $48.60; $16,500.00; $112,500.60
C) $44.00; $48.75; $16,750.00; $112,750.70
D) $48.00; $48.90; $17,015.50; $113,025.50
E) $50.00; $49.06; $17,175.00; $114,062.50

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