Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per kilogram of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of flour. Each loaf of bread uses one-half kilogram of flour.
What is the operating income for the entire organization if 100,000 loaves of bread are sold?

Question

Quizplus · Accepted Answer

The operating income for the entire organization can be calculated by first determining the total revenue from selling 100,000 loaves of bread, then subtracting the total costs incurred by both divisions. Total revenue is $2.50 per loaf * 100,000 loaves = $250,000. The cost of flour per loaf is $0.375 * 0.5 = $0.1875, so for 100,000 loaves, the cost of flour is $0.1875 * 100,000 = $18,750. Division Y's other costs are $1.25 per loaf * 100,000 loaves = $125,000. The total costs are $18,750 (flour) + $125,000 (other costs) = $143,750. Therefore, the operating income is $250,000 (revenue) - $143,750 (total costs) = $106,250.

Division X Sells Organic High-Gluten Flour to Division Y