What will be the effect on sugar company operating profit

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Reference no: EM132782812

Sugar Company has two divisions, Lenox and Berkshire. Lenox produces an item that Berkshire could use in its production. Berkshire currently is purchasing 100,000 units from an outside supplier for P43 per unit. Lenox is currently operating at full capacity of 750,000 units and has variable costs of P28 per unit. The full cost to manufacture the unit is P35. Lenox currently sells 750,000 units at a selling price of P44 per unit.

Question a. What will be the effect on Sugar Company's operating profit if the transfer is made internally?

Question b. What will be the change in profits for Lenox if the transfer price is P40 per unit?

Question c. What will be the change in profits for Berkshire if the transfer price is P40 per unit?

Reference no: EM132782812

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