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Question - The Cool Air Company manufactures only one type of air conditioner and has two divisions: the Compressor Division and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner 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 $77. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5000-10 000 units. The fixed costs for the Assembly Division are assumed to be $15.00 per unit at 10 000 units.
Compressor's costs per compressor are:
Direct materials $34.00
Direct labour $14.50
Variable overhead $6.00
Division fixed costs $15.00
Assembly's costs per completed air conditioner are:
Direct materials $300.00
Direct labour $125.00
Variable overhead $40.00
If the Assembly Division sells 1000 air conditioners at a price of $750.00 per air conditioner to customers, what is the operating profit of both divisions together?
A. $165 750
B. $200 500
C. $207 000
D. $194 000
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