Bernie Manufacturing Company has two divisions, X and Y. Division X prepares the steel for processing. Division Y processes the steel into the final product. No inventories exist in either division at the beginning or end of 2011. During the year, Division X prepared 80,000 kgs. of steel at a cost of £800,000. All the steel was transferred to Division Y where additional operating costs of £5 per kg. were incurred. The final product was sold for £3,000,000.
Required:
a.
Determine the gross profit for each division and for the company as a whole if the transfer price is £8 per kg.
b.
Determine the gross profit for each division and for the company as a whole if the transfer price is £12 per kg.

Question

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The Answer of Bernie Manufacturing Company has two divisions, X and Y. Division X prepares the steel for processing. Division Y processes the steel into the final product. No inventories exist in either division at the beginning or end of 2011. During the year, Division X prepared 80,000 kgs. of steel at a cost of £800,000. All the steel was transferred to Division Y where additional operating costs of £5 per kg. were incurred. The final product was sold for £3,000,000.
Required:
a.
Determine the gross profit for each division and for the company as a whole if the transfer price is £8 per kg.
b.
Determine the gross profit for each division and for the company as a whole if the transfer price is £12 per kg.

Bernie Manufacturing Company Has Two Divisions, X and Y