The assembly department of Mifflin Inc. has negotiated a deal with the distribution department (internal department) to sell them laser printers. The assembly department has operating capacity of 76,000 printers annually and has made the following external sales: The negotiated deal will be to sell 19,804 printers to the distribution department for the minimum acceptable transfer price. If the distribution department would like to have an Operating Income of $32,680, then what is the overall amount of sales that they must have? Do not round intermediate calculations.
A) $55,454.60
B) $65,745.88
C) $93,280.24
D) $131,178.84

Question

The assembly department of Mifflin Inc. has negotiated a deal with the distribution department (internal department) to sell them laser printers. The assembly department has operating capacity of 76,000 printers annually and has made the following external sales:  The negotiated deal will be to sell 19,804 printers to the distribution department for the minimum acceptable transfer price. If the distribution department would like to have an Operating Income of $32,680, then what is the overall amount of sales that they must have? Do not round intermediate calculations.
A) $55,454.60 
B) $65,745.88 
C) $93,280.24 
D) $131,178.84

Quizplus · Accepted Answer

This question requires calculation of the minimum acceptable transfer price and then use of the formula for Operating Income to be able to calculate desired sales. Since the assembly department is operating at full capacity, their minimum acceptable transfer price would be equal to market price or the sum of variable cost per unit and the contribution margin per unit. To calculate this, divide the dollar amount of sales by the number of units sold: $378,000/76,000 printers = $4.97 per unit. Next, calculate the desired sales. Sales - Cost (cost to acquire from assembly department) = $32,680. Sales - ($4.97 × 19,804) = $32,680. Sales - 98,498.84 = $32,680. Sales = $131,178.84 (Choice D).

The Assembly Department of Mifflin Inc