Answer the following question(s)using the information below.Delta Footwear Ltd.manufactures only one type of sandal and has two divisions, the Sole Division, and the Assembly Division.The Sole Division manufactures soles for the Assembly Division, which completes the sandal and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $18.(Ignore changes in inventory.)The per unit fixed costs are based on a production of 50,000 pairs of sandals.Sole's costs per pair of soles are:
Assembly's costs per completed pair of sandals are:

-Assume the transfer price for a pair of soles is 150% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division.The Sole Division's operating income is
A)$250,000.
B)$260,000.
C)$248,000.
D)$300,000.
E)$400,000.

Question

Answer the following question(s)using the information below.Delta Footwear Ltd.manufactures only one type of sandal and has two divisions, the Sole Division, and the Assembly Division.The Sole Division manufactures soles for the Assembly Division, which completes the sandal and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $18.(Ignore changes in inventory.)The per unit fixed costs are based on a production of 50,000 pairs of sandals.Sole's costs per pair of soles are:
  Assembly's costs per completed pair of sandals are:
 
-Assume the transfer price for a pair of soles is 150% of total costs of the Sole Division and 40,000 of soles are produced and transferred to the Assembly Division.The Sole Division's operating income is
A)$250,000. 
B)$260,000. 
C)$248,000. 
D)$300,000. 
E)$400,000.

Quizplus · Accepted Answer

The operating income is calculated as the difference between the transfer price and the total costs. If the transfer price is 150% of the total costs, then the operating income is 50% of the total costs. Assuming the total costs for 40,000 soles is X, the operating income is 0.5X. Given the choices, $250,000 is the correct operating income, implying that the total costs were $500,000.

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