The Happy Coffee Company manufactures coffee mugs in-house that it then sells 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 of 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) per unit for the Glazing department?

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Quizplus · Accepted Answer

This question requires understanding of how the overall Operating Income is calculated when 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. Sales - COGS (cost to acquire from glazing) = Operating Income, so $9.36 - COGS = $4.56, and COGS = $4.80 per unit. Lastly, calculate the COGS for the Glazing department by applying this same formula: Sales - COGS = Operating Income. $4.80 - COGS = $1.90. COGS = $2.90 per coffee mug (Choice B).

The Happy Coffee Company Manufactures Coffee Mugs In-House That It