The Happy Coffee Company manufactures coffee mugs and sells them to external vendors. They have several divisions that are involved in the process and sell to one another internally. The very last department involved in this process is the Distribution department who sells the final product to local coffee shops. The Distribution department purchases all their units internally from the Glazing department. The sales from the Distribution department to the external vendors amounted to 19,412 mugs for a total of $181,725.72. If the Operating Incomes per unit were as follows for each division: Distribution, $4.56; and Glazing, $1.90; then what is the Cost of Goods Sold (COGS) for the Glazing department? (Do not round your calculations.)

Question

Quizplus · Accepted Answer

This question requires understanding of how the overall Operating Income is calculated when total sales involve internal sales as well as sales of the end product to an external entity. If the sales value is divided by the number of mugs sold, then the per-unit selling price can be calculated: $181,725.72/19,412 = $9.36 per unit. Next, use the Operating Income formula to determine the COGS: Sales - COGS (cost to acquire from Glazing) = Operating Income, so $9.36 - COGS = $4.56, and COGS = $4.80 per unit. Now, calculate the COGS for the Glazing department by applying this same formula: Sales - COGS = Operating Income, so $4.80 - COGS = $1.90. COGS = $2.90 per coffee mug. Lastly, to calculate the total COGS, multiply this value by the number of mugs sold: $2.90 × 19,412 mugs = $56,324.20 (Choice A).

The Happy Coffee Company Manufactures Coffee Mugs and Sells Them