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Madison Co. has two divisions: Chocolate and Mocha. The Chocolate Division produces the chocolate to be used in Mocha Instant produced by the Mocha Division. Mocha Instant sells for $2.00 a cup. Chocolate Division's costs are $1.50 per cup. Mocha Instant requires ¼ cup of Chocolate powder and additional $1.20 per cup for additional materials, labor and variable overhead.
-What is Chocolate Division's operating income per cup assuming a transfer price of $2.25 per pound?
A) $2.25
B) $1.75
C) $0.75
D) $0.50

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Quizplus · Accepted Answer

The operating income per cup for the Chocolate Division is calculated by subtracting the cost from the transfer price. Since the transfer price is given per pound and not per cup, and the question does not provide the necessary information to convert pounds to cups or the cost per cup directly based on the transfer price, it's not possible to accurately calculate the operating income per cup based on the provided information. However, assuming a direct relationship between cost and transfer price without the conversion detail, the operating income cannot be accurately determined from the given options without additional information on the quantity of chocolate powder per cup in pounds or the cost structure related to the $2.25 transfer price. Therefore, the explanation provided is based on the assumption that there's a misunderstanding in the question's details as it stands.

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