Solution-Determine the operating income for each division

Determine the operating income for each division

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Reference no: EM133089231

Question - Star Steel Company has two divisions. The Raw Material Division prepares sheet metal at its warehouse facility. The Finishing Division prepares the cut sheet metal into finished products for the air conditioning industry. No inventories exist in either division at the beginning of 2021. During the year, the Raw Material Division prepared 4,50,000 square feet of sheet metal at a cost of Rs 4 per square foot (market price is Rs 6 per square foot). All the sheet metal was transferred to the Finishing Division, where additional operating costs of Rs 2 per square foot were incurred. The 4,50,000 square feet of finished fabricated sheet metal products were sold for Rs 9 per square foot.

Required -

a) Determine the operating income for each division

i. If the transfer price from Raw Material to Finishing is at a cost

ii. If the transfer price from Raw Material to Finishing is at the market price

b) Since the Raw Materials Division sells all of its sheet metal internally to the Finishing Division, does the Raw Materials manager care what price is selected? Why? Should the Raw Materials Division be a cost center or a profit center under the circumstances?

Reference no: EM133089231

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Determine the operating income for each division

Reference no: EM133089231

Reference no: EM133089231

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