Reference no: EM132590370

Cheney, Inc. operates with two divisions, Y and Z. In order to encourage Division Z to buy its materials within the company form Division Y, management has allowed Division Z to record its purchases from Division Y at Division Y's unit variable cost. And, to encourage Division Y to sell without prejudice to Division Z, Division Y is allowed to use the same price for sales to Division Z as it uses in billing outside customers.

Division Y can sell its entire output of 500,000 at a price of $60 per unit either internally or outside. Total costs of production last year for Division Y were $25 million, of which $5 million were fixed costs. Division Y sold 300,000 units on the outside market and 200,000 units to Division Z. Division Z sold 200,000 units to the outside market at a price of $120 per unit. In addition to the cost of materials purchased from Division Y, Division Z incurred other production costs last year of $9 million.

Question 1) Gross margin last year for Division Y

Question 2) Gross margin last year for Division Z