Reference no: EM132781785

Question - Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers. The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip $50

Variable costs per chip $20

Fixed production costs $60,000

Fixed SG&A costs $90,000

Monthly capacity 10,000 chips

External sales 6,000 chips

Internal sales 0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Answer the ff:

Assume that next month's costs and levels of operations in the Computer and Computer Chip Divisions are similar to this month. What is the maximum of the transfer price range for a possible transfer of the chip from one division to the other?

$45

$30

$50

$35

If a transfer between the two divisions is arranged next period at a price (on 4,000 units of super chips) of $40, total profits in the Computer Chip division will

drop by $40,000 compared to the prior period

drop by $20,000 compared to the prior period

rise by $20,000 compared to the prior period

rise by $80,000 compared to the prior period

Assume, for this question only, that the Computer Chip Division is selling all that it can produce to external buyers for $50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the Computer Division at $45?

$90,000 increase

$20,000 increase

$20,000 decrease

no effect