Answer the following question(s)using the information below.Cool Air Ltd.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 them 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 5,000-10,000 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:
Assembly's costs per completed air conditioner are:

-Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division.The Compressor Division's operating income is
A)$31,750.
B)$32,750.
C)$34,750.
D)$36,500.
E)$49,750.

Question

Answer the following question(s)using the information below.Cool Air Ltd.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 them 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 5,000-10,000 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:
  Assembly's costs per completed air conditioner are:
 
-Assume the transfer price for a compressor is 150% of total costs of the Compressor Division and 1,000 of the compressors are produced and transferred to the Assembly Division.The Compressor Division's operating income is
A)$31,750. 
B)$32,750. 
C)$34,750. 
D)$36,500. 
E)$49,750.

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 total costs, then the operating income is 50% of the total costs. Assuming the total costs are $69,500 (since 50% of $69,500 is $34,750), the operating income would be $34,750.

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