Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of residential grade carpeting.The division has the capacity to produce 500,000 square yards of carpet each year.Its current costs and revenues are shown here:
Sales (400,000 square yards) $\$ 2,000,000$
Variable costs per square yard:
Production $ \$ 2.00 $
SG&A 1.00
Fixed costs per square yard (based on 500,000 yard capacity)
Production $ \$ 0.50 $
SG&A 1.00

The Housing Division currently purchases 40,000 yards of carpeting (of the grade produced by the Carpet Division)each year at a cost of $6.50 per square yard from an outside vendor.
Refer to Castle Homes Corporation.If the Housing and Carpet Divisions agree on the internal transfer of 40,000 square yards of carpet at a price of $4.00 per square yard,how will overall corporate profits be affected?

Question

Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of residential grade carpeting.The division has the capacity to produce 500,000 square yards of carpet each year.Its current costs and revenues are shown here:
 Sales (400,000 square yards)                                $\$ 2,000,000$
Variable costs per square yard:
Production                                                             $ \$ 2.00 $
SG&A                                                                      1.00
Fixed costs per square yard (based on 500,000 yard capacity)
 Production                                                              $ \$ 0.50 $
SG&A                                                                      1.00

The Housing Division currently purchases 40,000 yards of carpeting (of the grade produced by the Carpet Division)each year at a cost of $6.50 per square yard from an outside vendor.
Refer to Castle Homes Corporation.If the Housing and Carpet Divisions agree on the internal transfer of 40,000 square yards of carpet at a price of $4.00 per square yard,how will overall corporate profits be affected?

Quizplus · Accepted Answer

The Answer of Castle Homes Corporation
The Carpet Division of Castle Homes Corporation manufactures a single grade of residential grade carpeting.The division has the capacity to produce 500,000 square yards of carpet each year.Its current costs and revenues are shown here:
 Sales (400,000 square yards)                                $\$ 2,000,000$
Variable costs per square yard:
Production                                                             $ \$ 2.00 $
SG&A                                                                      1.00
Fixed costs per square yard (based on 500,000 yard capacity)
 Production                                                              $ \$ 0.50 $
SG&A                                                                      1.00

The Housing Division currently purchases 40,000 yards of carpeting (of the grade produced by the Carpet Division)each year at a cost of $6.50 per square yard from an outside vendor.
Refer to Castle Homes Corporation.If the Housing and Carpet Divisions agree on the internal transfer of 40,000 square yards of carpet at a price of $4.00 per square yard,how will overall corporate profits be affected?

Castle Homes Corporation the Carpet Division of Castle Homes Corporation $2,000,000\$ 2,000,000$2,000,000

Castle Homes Corporation
the Carpet Division of Castle Homes Corporation $\$ 2,000,000$